Until Wednesday, I’d never heard of Woodbois Limited (LSE: WBI). But then I saw the results of the company’s latest fundraising, and examined the Woodbois share price. At around 6p, it’s a penny share for sure. But it’s climbed 87% so far in 2021 and it’s up from 3.3p a year ago.
Woodbois is a forestry and timber company, operating in Africa. And on Tuesday, it had announced a plan to raise up to £5m via a share placing, to fund a number of different developments. At 6p per share, it was a little below the market price of around 7.5p on the day.
The company wants to extend its carbon sequestration business by buying and reforesting land in Gabon. In the same country, it also plans to expand its forestry concessions with a new 56,000 hectare acquisition. A production capacity expansion is on the cards too, for a recently purchased veneer line. And Woodbois aims to capitalise on waste products with a new blockboard facility. It all sounds impressive, but will it result in a lengthy bull run for the Woodbois share price?
On Wednesday, Woodbois told us the placing had generated gross proceeds of £6m. Investors were really keen, it seems. And that’s often not the case with companies on penny share prices. Penny shares might look like obvious bargains, but companies tend not to start off that way. No, a penny share is usually a result of a previously highly-rated share hitting hard times. And the Woodbois share price is still way below its 50p levels of 2011.
Is the Woodbois share price attractive now?
So what about Woodbois as an investment now? The company has been through a major restructuring, after having accumulated hefty debt. In August 2020, Woodbois converted the bulk of that debt to equity, reducing it by 85%. On the upside, that gives the company an opportunity for a fresh start. But against that, a fresh start doesn’t help unless the problems that created the mess in the first place are actually rectified.
The Woodbois share price might only be around 6p. But if we don’t see a fundamental turnaround on the back of the balance sheet reset, shareholders could still face the same possible worst outcome — a loss of 100%. So far, Woodbois has reported a gross profit for the 2020 full year of a modest $1.2m. But it’s not yet cash flow positive, though it does say it’s on track to achieve it.
Profit, but no positive cashflow
For the first quarter of the current year, revenue grew by 44% over the previous quarter, to $4.6m. And at 6 April 2021, the company had a cash balance of $1.2m and working capital of $6.2m, with bank loans of $8.3m.
It looks like what happens next could depend very much on the proposed projects to be funded by the new cash raise. If it comes off and we see a breakthrough to positive cashflow, I reckon the Woodbois share price could take a jump upwards. But the longer we see cash burn, the greater the chance of things heading south again. I don’t like risky penny shares and won’t be buying.