It’s been a roller-coaster year for investors holding Woodbois (LSE:WBI) shares. The stock was trading at 4.40p per share at the turn of the year, before soaring to around 8p by early summer. Since then, the price has slowly deflated and today sits at 3.25p.
This week the sustainable timber company provided a positive trading update. Should I buy shares on the back of this news?
Buy because of business progress
Between July and September, Woodbois notched up record quarterly revenue of $5.8m. That’s up 29% over last year. This helped boost its nine-month revenues to $17.1m, a 35% increase over the equivalent period in 2021.
Sawmill production soared 78% from the 2021 quarterly average, hitting 6,032 cubic metres. Meanwhile, veneer output was up 45% on a comparable basis.
All this helped gross profit margins rise to 24% for the first nine months of 2022. This was partly due to a strong US dollar, which helped the company as it reports in US dollars while its costs are incurred in local currencies.
Woodbois is progressing towards achieving FSC certification for its forestry concessions and factories. FSC-certified wood means it is sourced from forests that are responsibly managed in the most environmentally sustainable way possible. This certification would the company’s increase markets, margins, and profitability. This process is now 62% complete.
Buy because of carbon offsets progress
Trees absorb carbon dioxide from the atmosphere. It’s a complicated business calculating exactly how much CO2 they capture, but forest concessions in Africa are very large. So there’s the potential to take out much more carbon than the company emits through its operations. This could allow the company to generate extra money by selling its carbon offsets in the voluntary market.
However, the firm is yet to receive certification and approval for its first project. Management noted: “Upon receiving any grant of land from the government we will immediately look to scale the pilot scheme, preferably with the financial support of one or more external funding partners”.
This reveals the company is yet to be granted land from the government of Gabon, while external funding will be needed to get the project off the ground.
So, I’m not expecting any revenue from this side of the business anytime soon. I do, however, think this part of the business will come to fruition (eventually), and that funding will be secured (from somewhere). Any progress here would likely send shares skyrocketing.
Sell because of the company’s poor track record
Woodbois is not a new company. Its shares have been listed on the stock market (in one form or another) for over a dozen years. In that time, they’re down 87%. Net debt now stands at $10.9m, while consistent profits are yet to materialise.
More worryingly for me, the number of Woodbois shares in existence has increased fivefold in the last three years. This has been necessary to raise fresh capital to fund operations, but it’s diluted the value of shares and made them less valuable.
I’m interested in the potential of the company’s carbon solutions division, but I’m still on the sidelines for now.
