Is the Woodbois share price a steal at under 5p?

The share price of Woodbois dropped to 4.6p last week. At such a cheap price, is this raw materials stock a ‘no-brainer’ buy for me right now?

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The Woodbois (LSE: WBI) share price dropped 8% last week to close at 4.6p. This contrasts with an 18% increase over the last 12 months.

The African timber producer reported consistent output increases in its first quarter. This caused the stock to leap 60% during April. However, since its Q2 update, the share price has slowly dwindled.

But a look at the company’s accelerating development in the last two years leads me to believe the stock can continue to rise. Let’s take a look at why I think the Woodbois share price is a steal at under 5p.

Fruits of its investment

The company’s ambitious investments are finally paying off. It has seen impressive financial accomplishments and exciting operational developments.

In the second quarter of 2021, the timber producer reported the acquisition of two new veneer production lines in Gabon for £0.7m. And in its recent Q2 report, the company reported a 50% increase in production. Yet this achievement came from just one production line. The second is set to be operational by the end of this month.

However, it must be noted that Rhino Ventures currently holds 57% of Woodbois total non-voting shares. The venture fund previously held all 620m shares as of March 2021. Since then, Rhino Ventures has slowly sold off its investment and taken profits. However, my concern remains that such a large amount of Woodbois shares are held in the hands of this single fund. If Rhino Ventures continues to sell out of its investment, the Woodbois share price would likely drop.

Yet an accelerating performance convinces me to overlook this risk. The company’s exports almost doubled in the latest quarter against the quarterly averages for FY21. Also, its gross profit margins increased by 3% — rising from 20% in FY21 to 23% this quarter. So, despite shareholder sell-offs, I believe that the Woodbois share price can push beyond 5p as operational investment begins to show returns.

An unstable road ahead

Improving operations are perhaps a green light for an investor like me. However, the fact that the Woodbois operations are in Gabon raises red flags.

Gabon has been hit particularly hard by the rising price of fuel — even to the point of shortages. Increasing prices will certainly have an impact on the company’s operational cash flow. As well as this, the country faced an attempted coup in 2019. This political instability has considerable implications for the safety and consistency of the firm’s operations.

There are advantages to the company’s location however. The Gabonese government declared that all operators of forest concessions must be certified by 2022. Woodbois has reported a 60% completion of its Forest Stewardship Council certificate. This enables it to access valuable types of timber in the area. Also, the Gabonese forest industry has gained increasing traction in the last decade. With the timber producer well placed to take advantage of this, I feel the company’s location can actually work to its advantage.

Overall, I believe the Woodbois share price is a steal at below 5p. The company’s investment strategy has clearly succeeded in expanding productivity. Moreover, it’s evident that the timber producer is well adapted to its area of operations, and is set to continue its consistent progress. Because of this, I will be looking to add Woodbois shares to my portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Hamish Cassidy has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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