The Woodbois (LSE: WBI) share price has risen from its September 2022 low of 3.3p to about 4.3p at the time of writing. That is a 30% gain in less than a month. But let’s introduce some context: Woodbois shares traded for 8p in May 2022, close to 21p in 2017, and near 50p in 2011.
What does Woodbois do?
Woodbois owns 470,000 hectares of forest concessions across Gabon and Mozambique. It harvests and processes trees into lumber at sawmills in those countries. There is also a veneer factory in Gabon, where high-quality tree trunks are processed into higher-value products. Woodbois also has a wood products trading operation.
Revenues from these operations increased from $7.89m in 2017 to $19.5m in 2019. There was a blip during 2020 and 2021 — hardly surprising given the Covid-19 pandemic — but trailing 12-month revenues are up to $20.6m. Estimates for 2022 and 2023 are $27.1m and $38.5m, respectively.
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If the estimate for 2023 revenues comes in, sales would have grown by 23% per year on average over the five years up to that point. Woodbois has a P/E ratio of 3.9. That’s cheap for a company growing so quickly.
Does Woodbois sell carbon credits?
Unfortunately, I cannot trust that P/E ratio. It is based on a reported 2021 profit of $91m, which followed a string of losses. But strip out a gain on a bargain purchase of $88m, which is not likely to recur, and the profit falls back to $2.5m, and I get a P/E ratio of more like 44. Moreover, Woodbois has recorded a gain in its biological assets (the trees) on its income statement for multiple years, but that does not represent cash coming into the business.
Looking at the cash flow statement, I see that the company has not generated cash from its operations since 2016, although they are getting less negative.
A carbon solutions business opened this year. Although it has no revenue yet, its potential comes from the estimated 1,700kg of CO2 that one ton of wood sequesters from the atmosphere. The company does not sell carbon credits. But, because its operations could be recognised as carbon negative, it could generate money from selling carbon offsets in the voluntary market. Woodbois also has experience managing forests and could leverage this expertise in reforestation projects.
Woodbois share price
Overall, I see a company with increasing revenues and solid gross margins, that has recently seen its operating margin, excluding those biological asset fair value gains, turn positive. Cash flows from operations could follow suit. I expect the carbon solutions business to help with this, as it should be a low-capital, high-margin business, piggybacking off existing operations. But, it has generated operating costs of $1.3m in its first year, while its first project is still awaiting certification and approval.
I think there is potential for the Woodbois share price to grow. However, it’s still too early for me to rush in. I want more information on the carbon solutions business, for one thing. Woodbois faces significant regulatory risks as the volume of trees it can cut down is regulated within a wide range. That makes, for example, expanding sawmill capacity, which it has done, tricky. This is still a highly speculative AIM stock, but it’s one for me to watch.
