The Woodbois (LSE: WBI) share price ended May at 5.85p. That’s a 3.5% drop. Nothing too exciting in itself, but it reflects a dramatic month.
Woodbois has a market-cap of only £117m. A sizeable chunk is owned by a small number of major shareholders. And when there’s a small free float, it doesn’t take a lot to get the share price moving.
The chart shows how volatile Woodbois shares have been:
The Woodbois share price started rising in April. It then spiked in May to reach a 52-week high of 9.39p, before turning tail and losing some of the gain.
The Woodbois business
Woodbois produces sustainable hardwood from its plantations in Gabon. But it is also getting into the carbon credits business, pending regulatory red tape.
Results for 2021 showed a headline profit for the first time. But it wasn’t all it seemed. It was dominated by large adjustments for the valuation of assets, based on changed accounting rules.
So profits from actually growing and selling wood haven’t really started rolling in yet. And the carbon business is still in its loss-making phase.
A Q1 update on 19 April revealed the company’s best quarter in terms of product volumes shipped since before the pandemic. So that will have given the Woodbois share price some support.
Then a paid article on 6 May claimed Woodbois was set to soar by 1,000%. And it turned up in search results. Curiously, after we covered it here at The Motley Fool, the story quickly disappeared. But it resurfaced, republished on 26 May, again without any financial justifications for its claims.
Is it a buy?
For me, it’s about deciding which business I’m thinking of investing in. Sustainable hardwood, or carbon credits? On the hardwood front, we’re looking at a trailing price-to-sales ratio (PSR) of around seven. That would be high for a company with stable sales. But Woodbois has assets that have barely been utilised, and the PSR could fall quite quickly. Good… so far.
But the risk for me is liquidity. Cash flow in 2021 was negative. And debt has grown so far in 2022. By the time sustainable profits and cash flow arrive, will shareholders suffer dilution? And then there’s the effect of rising debt on valuations too.
I have no interest in Woodbois’ carbon credits business right now. It might turn out to be profitable, but there’s really nothing to quantify at the moment. That means I can’t put any kind of valuation on it.
Developments
I’m just going to watch for for developments. And there have been a couple of interesting recent ones. Woodbois has partnered with World Forest ID, which will help with the traceability of its hardwood products. The extra confidence that provides should help the company’s sales prospects.
And then a “person closely associated” with a Woodbois non-executive director has just sold 30 million shares. It’s probably perfectly innocent, but I wonder why a person who presumably knows the business would sell if Woodbois is a ‘bargain buy’ now?
On balance, I’m not going to buy. I really want to see where the Woodbois share price goes over the next few months.
