Woodbois (LSE: WBI) has attracted investor attention in recent weeks. And it’s certainly piqued my interest. The idea of a company in a sustainable and potentially carbon-neutral business is very attractive. But before I decide whether to buy Woodbois shares, I have a key question.
Is the Woodbois share price supported by sufficient liquidity?
Growth prospects
Woodbois is a penny stock that investors are buying for its growth prospects. At the moment, those prospects are twofold.
One is the sustainable African hardwood business. I can easily believe there’s reliable long-term demand there. If, perhaps, not enough to support explosive growth.
The carbon credit business looks more exciting. And I can see tempting possibilities there. But in a regulated business, it will take Woodbois time to get the necessary permissions. Only then can it hopefully grow the business to profitability. But that will take money.
So, I’ve been examining the Woodbois profit and cash situation.
Profit and loss
Operating profit in 2021 reached $2.25m. But that included a $4.25m “gain on fair value of biological assets.” That looks like an underlying operating loss to me. The new Carbon Solutions division lost $1.35m.
Pre-tax profit of $90.7m also included a one-off. This time it was an $88.3m “gain on bargain purchase” arising from the acquisition of 71,000 hectares of forest concessions in Gabon. There was no revenue from those trees in 2021.
Woodbois did record its first year of positive EBITDAS of $1m. That’s a non-standard measure, including stock option expenses. There are some interesting items too. In 2020, there had been a “loss owing to theft” adjustment of $3.4m, for example. That seems careless.
Overall, right now, I find it hard to get an underlying profitability picture here.
Show me the cash
On the cash flow front, Woodbois said “Although not yet cash flow positive, we managed to reduce our cash outflow from operating activities to $2.5m from outflows of $5.5m in 2020 and $10.6m in 2019.”
How will it fund its 2022 operations?
Year-end cash stood at $0.9m, with borrowings at $12.1m. But cash had increased to $2.7m by 28 March. That’s after Woodbois agreed two new loans for a total of $4m in January with its two largest shareholders. One $2m facility was fully drawn by February, attracting interest of 8.5%.
CFO Carnel Geddes said Woodbois is “confident of materially increasing revenues and profitability during 2022.” She also added: “As we navigate our way through these challenging times, our focus is strongly on ensuring that the business becomes cash flow positive.“
The big question
So what about the answer to my question? Is the Woodbois share price supported by sufficient liquidity? At this point, I can’t be confident. If the company needs fresh cash, where will it get it? And will it result in shareholder dilution?
My uncertainty means I won’t buy Woodbois shares now, even if it means I might be passing up a good growth opportunity.