The Woodbois (LSE: WBI) share price has fallen below 3.5p, even after the company posted record revenue in the third quarter.
If Woodbois was a buy at 5p, then surely it’s a better buy now, isn’t it? Well, that’s the big question. So let’s have a look at what the latest quarterly update says.
In the quarter ended 30 September, Woodbois hit a record quarterly revenue. At $5.8m, it came in 29% ahead of the $4.5m achieved in the same quarter of 2021. And for the nine months, there’s a 35% increase to $17.1m, from $12.7m in the same period last year. That’s another record.
So why the share price fall? It’s interesting to compare these latest revenue growth rates at the nine-month stage with half-year figures.
Revenue growth slowing?
In the first six months of 2022, revenue increased 38% compared to the same period of 2021. The 29% increase in the third quarter is quite a bit below that. And that suggests revenue growth might be slowing. At a time when revenue growth is all-important in the quest for first profits, that could well be a reason for some investors selling out.
The company did improve its gross margin to 24%, but that’s only from 23% in the first half. Statistically, it’s essentially static.
Liquidity
For a company at this stage in its development, having the liquidity to make it all the way to achieving profit and sustainable cash flow is key. At 30 September, Woodbois had a cash balance of $1.4m. That’s down from $2.1m at the end of the first half, at 30 June. If that rate of decline continues, there’ll be none left in another six months.
Woodbois reported working capital of $9.3m at the end of the half, which looks healthy. But two thirds of that is inventory. Bank loans and other borrowings amount to $12.3m, fractionally down from the halfway level of $12.4m.
Cost saving
I also read one statement that caused me some concern. The latest update said: “The group has reduced senior management head-count and costs, which will benefit Q4“.
I don’t know what’s behind that. But culling management to save costs is not what I’m used to seeing at dynamic growth companies.
And Woodbois did add: “Recently, given the rising likelihood of some pricing pressure however, it was felt prudent to reduce exposure to third party trading for Q4 2022 and focus on own-products”. The outlook is, as companies often describe it, uncertain.
Verdict
What’s my verdict? I still think this is a company that has a promising future. The sustainable hardwood proposition looks attractive. And if the carbon credits business takes off, I think there could be decent profits from it.
I just don’t see how it can happen without a lot more cash. And how much dilution current shareholders might face by the time Woodbois becomes profitable is a huge unknown. I expect further volatility.
Wait and see what the full year brings, I think.
