It’s hard to work out where the Woodbois (LSE: WBI) share price is likely to go next. The surge in May didn’t last long, and since then the shares have fallen back.
But after dropping to a 52-week low in early September, Woodbois shares have since picked up a bit. Is there any chance of a sustained upwards movement now?
I think there are three things that could help drive long-term growth.
1. Clearer accounts
When Woodbois released first-half figures in August, the company boasted its first ever operating profit.
And yes, even an operating profit as low as the recorded $15,000 is better than the $654,000 operating loss in the same period of 2021. But it’s swamped by other items in the accounts. Largely due to finance costs, Woodbois reported a loss before tax of $489,000. At this stage, operating profit isn’t remotely close to covering the company’s costs of finance.
Then elsewhere, under “Items that may be reclassified subsequently to profit or loss,” there’s a loss of more than $2m. And a bottom-line “Total comprehensive loss” of $2.5m.
Previous accounts have had all sorts of big one-offs relating to revaluations and similar items. There’s nothing wrong doing the accounts this way. But it makes them almost totally opaque to investors trying to get a handle on profitability. Clarity, hopefully, will come with time.
2. Cash flow
There’s an old saying: “Turnover is vanity, profit is sanity, cash is reality.”
Do I base my assessment of Woodbois on that tiny $15,000 stated operating profit, on the sizeable $489,000 loss before tax, or on the humungous total comprehensive loss of $2.5m? No, forget all of that, I want to see cash.
For the six months to 30 June 2022, Woodbois reported net cash outflow from operating activities of $78,000. So whatever the operating profit line says, that amount of operating cash departed.
The company is still making big investments to develop the business, and that’s burning cash right now, as is to be expected. But until Woodbois turns cash-flow positive, I won’t feel confident in any thoughts about long-term profitability.
3. Carbon credits
Now we come to the part that’s surely driving a lot of the speculative investors who have been in and out during 2022. It’s got to be the carbon credit business. A company that owns vast acreage of forests that draw carbon dioxide from the atmosphere could have good prospects in that market.
The problem is, there’s very little that can be quantified about it right now. Apart from costs, that is. We saw no revenue, and $821,000 in first-half costs.
It sounds to me like there’s promise here. But Woodbois still needs approval for its maiden project, which it hopes to get in the second half of 2022. There are certifications needed, too. And even after that, it seems we’re set for a four-year trial phase.
But as it seems to be a big driver of investor sentiment, I suspect any progress on the carbon credit front could give the shares a push.