Let’s recap what’s happened to the Woodbois (LSE: WBI) share price in 2022. The shares climbed sharply a couple of times during the year, aided no doubt by a bit of attempted pumping and dumping.
The price fell back when the enthusiasm faded, dropping to 3.1p in the first week of September. But in the past few days, its been heading upwards again. Woodbois ended Monday with a gain on the day of 9%. And at 3.8p, it’s now up 23% since last week’s low.
Why is there so much excitement over a humble forestry company operating in Gabon? It produces renewable hardwood, and that will presumably be in high demand. But when first-half company accounts were released in August, it was far from clear whether there’s any sustainable operating profit yet.
Carbon credits
The attraction, surely, has to be down to the second part of the Woodbois business. I’m talking about carbon credits here. Recent estimates put the value of the global carbon credits market at more than $250bn.
Even a relatively tiny portion of that could provide a big boost for the little £80m company that is Woodbois. But what do we know about the firm’s carbon credit business, and can we put any figures on it?
The easy answer to the second part of the question is no, not really. At least, the company hasn’t tried to quantify its financial hopes in that market yet. But we did get a few interesting snippets along with those interim figures.
Forests
It appears that Gabon has deforestation levels of less than 0.05%, one of the few countries left in that happy state. The country, in 2019, signed a $150m agreement with the UN for carbon removals through forest preservation. That’s not much on the scale of the global economy, but it could be significant if any of it feeds through to Woodbois.
Right now, Woodbois is still in the early days of negotiating the relevant regulatory hurdles. Primarily, it’s waiting for government approval for its “proposed initial large-scale afforestation project for carbon sequestration.“
Timescales
How long might it take? Woodbois says it hopes to gain approval for its maiden project in the second half of 2022. After that, it plans for a four-year trial phase. Somewhere along the line, the company needs to attain Forest Stewardship Council (FSC) certification too.
I don’t know when we’ll see Woodbois generating profits from carbon credits. But going on all of this, it sounds to me like it’ll be a few years yet.
During that time, Woodbois will need to go from recording net operational cash outflows to net inflows. So far, it’s been relying on funding activities to keep it going.
Cash flow
The carbon business is creating its own costs too — the division recorded a net loss of $821,000 in the six months to 30 June 2022.
How long will it take for Woodbois to become profitable and cash flow positive? And how much shareholder dilution will happen if new funding is required along the way?
I haven’t the faintest idea. But these are the questions an investor thinking of buying today needs to ponder.