Tungsten (LSE: TUNG) andRM2 (LSE: RM2) are both falling this morning after the two companies issued interim trading updates. Pallet producer RM2s trading update was the more disappointing of the two, and the market has reacted accordingly, sending the companys shares down by as much as 30% in early trading. And its clear why the market has reacted in this way.
Based on feedback from customers, RM2 has decided to change the design of its pallets. Specifically, management has decided to change the friction coating method from powder coating to a gel-based system. This change has been made to address customers health, hygiene and safety needsas well as bringing efficiencies and cost savings to the manufacturing process.
However, while this change should benefit the company over the long term, RMs short-term production will take a hit. As a result, revenue and production numbers for the full year will besignificantlybelow previous guidance.
City analysts had been expecting RM2 to report revenues of 12.3m for 2015 and a pre-tax loss of 8.1m before breaking even during 2016. Production delays are likely to mean that it will now take longer for RM2 to generate a profit.
Still, demand for RM2s pallets remains high and the group had $83m in cash at the end of 2014. So, theres no clear reason to sell up just yet.
Moving in the right direction
The market has also reacted negatively to Tungstens relatively upbeat trading statement issued today. In a statement issued ahead of the companys annual meeting, managementrevealed revenues were up 20% year-on-year during the first four months of the financial year. Whats more, all other key performance indicators seemed to be moving in the right direction.
Two new buyers had contracted to join the Tungsten Network in the period, and six existing buyers agreed contract renewals, at an average expected fee increase of 22%. Nearly 7,000 net additional e-invoicing suppliers were activated in thefour-monthperiod.238 suppliers are now registered to use Tungsten Early Payment with 89live.
After raising 17.5m earlier this year, Tungstens management believes that the companyhas sufficient cash resources to be able to deliver its current strategy. Management made the same statementa few months before the June capital raising.
City analysts are expecting Tungsten to report a pre-tax loss of 18.3m for 2016 and a pre-tax loss of 5.3m for 2017. Based on these forecasts, Tungstens cash balance might not last long.
Bright prospects
Iofinas(LSE: IOF) shares have slumped by more than 50% year-to-date, against the backdrop of challenging iodine market, where prices are below historical trends. Nevertheless, management has reacted quickly to the challenging environment by slashing costs and ramping up production.
And thanks to these actions City analysts expectIofinato report its maiden profit this year. Analysts are expecting a pre-tax profit of 0.1m for full-year 2015 on revenues of 16.8m. Earnings per share are expected to jump 641% during 2016 to 1.53p and on this basisIofinais trading at a 2016 P/E of 12.5. If the company can meet these forecasts, it could be a great play for growth investors.
That said, at present it’sdifficult to place a value onIofina’sshares. There are many risks ahead for the company, and while it looks cheap based on earnings estimates, there’s no telling what the future holds.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.