The internet has been awash with chatter about Woodbois (LSE:WBI) shares for a few months now. It appears that a (paid-for) research article has been doing the rounds, bullishly predicting massive upside for this small-cap stock.
The shares ticked up to 8p in May before falling back to the current price of 4p. I reserve a small portion of my portfolio for speculative plays (those moonshot bets that could deliver huge returns), so wouldn’t in principle be against buying Woodbois shares. I do have concerns though.
The business today
Woodbois is a producer and processor of sawn timber from its own forest concessions in Mozambique and the Republic of Gabon in Africa. This sustainable timber is sold throughout the continent and other parts of the world.
The company’s mission statement is: “Accelerating the transition to a net-zero economy“. Woodbois can claim this because the company plants more trees after it cuts others down. Also, selective logging lets more sunlight hit the forest floor, stimulating more new tree growth.
Revenue for the first six months of the year came in at $11.3m, which was 38% higher than last year. Total timber production increased 37% year on year, while total veneer production increased 50%. More importantly, Woodbois generated its first-ever operating profit on these numbers, albeit a small $15,000.
The business tomorrow (maybe)
Much of the interest in the stock, however, isn’t being generated by these fundamentals. The speculative buzz centres on Woodbois potential for one day selling carbon credits to other companies.
Global carbon markets aim to limit greenhouse gases. Caps are placed on the amount of carbon countries and companies can emit, and if they exceed those limits, they can buy permits from other, greener companies. These carbon markets are now collectively worth billions of pounds.
Woodbois should (in theory) have the credentials to sell these credits because it owns over a million acres of pure forest concessions in Africa. These standing forests take out more carbon from the environment than the company emits, making the business carbon negative. This means it could sell this ‘surplus’ to others that emit unacceptable levels of greenhouse gases (such as coal power plants).
Concerns
Woodbois has a permit agreement lasting till 2036 with the government of Gabon, which seems a relatively stable situation. But the company also has a sizeable operation in northern Mozambique, and this location does concern me.
Just last month, extremists beheaded six people in the province in which Woodbois operates. Terrorism has been a growing problem in northern Mozambique in recent years, and this could increase operational risk and political instability.
Will I buy?
Woodbois stock has hardly been a roaring success since it listed on the Alternative Investment Market (AIM) market in 2008. It’s down over 80%. I prefer my investments to be winners over such a time frame, not big losers. So I won’t be adding the shares to my buy list just yet.
But I’m intrigued enough to add them to my watchlist. I’ve subscribed to company news alerts and await further progress (or otherwise) on the carbon credit side of the business.