Joel’s Resource Report (30 Aug 2019) – Investing when others are fearful

Joel’s Resource Report (30 Aug 2019) – Investing when others are fearful

Global markets around the world are volatile and many investors appear to be scared. I perhaps controversially remain nearly 100% invested. I’m not advocating this as a strategy – I’m young(ish), have no dependants and don’t rely on investments for my lifestyle. Whatever you think about the global economy, I believe that small successful businesses can survive and thrive no matter the economic backdrop. That being said, I’ve not yet been through a 2008 style crash so perhaps I will have to change my tune in future!

A company I believe will do well over the next 6 – 12 months is Woodbois (WBI). Woodbois is an AIM listed  sustainable producer of African timber and a timber trader. It was formerly named Obtala. The company’s name was changed to reflect a renewed focus after disposing of agricultural assets and restructuring. Despite good progress over the past year, shares are back to near all-time lows (latest share price 5.8p ask, market cap £27 million).

(Source: Google)

I believe Woodbois will re-rate over the next 6 – 12 months for the following reasons:

The company is on-track for record revenues

The company’s 2018 results were as follows:

(Source: Woodbois)

First half 2019 revenues have continued to grow strongly:

(Source: Woodbois)

The above numbers are impressive when you take into account a slow quarter for production revenues – this was “due to prevention of the shipping of timber from Gabon during May and June 2019 following the discovery of the attempted illegal shipping of Kevazingo logs by a Chinese company”.

Trading revenues are up 60% and I expect those revenues to increase, after its “Internal Trading Fund” received a $2.5 million subscription in June. If Woodbois can continue to generate millions in trading revenue, they should be able to self-fund increases in trading capital.

Were the company to maintain H1 revenues into H2 the company could generate in the region of $20 million this financial year. With timber now being shipped from Gabon and full draw down of trade finance in June, H2 should be stronger than H1.

CEO Paul Dolan states in the following interview that he would be disappointed if Woodbois didn’t grow at an even faster rate in 2019:

Trades at significant discount to Net Assets

Woodbois had net assets of $130 million at year end versus a market cap £27 million.

Corporate structure to be simplified

Woodbois announced in their most recent quarterly results that they’ve proposed to “restructure the 5% perpetual preference shares in Woodbois subsidiary Argento by buying it back and issuing its holders instead with a convertible bond issued by Woodbois. The Woodbois convertible bond will have a 5 year tenure, 4% coupon and conversion price of 8p”.

Over 96% have accepted – former Chairman Miles Pelham owned 72.5% of the preference shares.

The rational for this is that it “simplifies the capital structure and serves to more closely align management, bondholders and shareholders’ interest, as well as making the company more investible and easier to value for institutional investors”.

This change will also make the business easier to value for retail investors with the transaction is expected to complete in September.

Institutional Investors own over 25%

The 1798 Volantis Fund (by Lombard Odier Asset management), has invested repeatedly (here, here and here) into both Woodbois and the company’s Internal Trading Fund note.

As a result, Lombard now own 25% of Woodbois.

It’s rare to see institutions repeatedly putting capital into resources companies unless they’re high quality and I’ve heard that Lombard’s due diligence was extensive and included visiting the company’s facilities in Africa.

Former Chairman has put material capital into Woodbois

Miles Pelham, former Chairman has put millions of dollars from his hard earned into Woodbois. For example in September last year he bought $2.9 million of preference shares. He also owns 30 million shares valued at over £1.6 million. Miles has an incredible CV and only stepped down because his blockchain/finance company Diginex is to list on the Nasdaq and he didn’t feel he could do justice to both roles. It’s rare to see AIM companies where management invest millions of pounds of their own money.

I’m not as confident with Woodbois as I am with RockRose Energy. That being said, I believe the Woodbois share price doesn’t reflect progress made in the past 12 months or take into account where the business could be in the next year. I hold a small position in Woodbois and believe that the company has a competitive advantage in that it has access to capital which is scarce in many African countries. My hope is for a Salt Lake Potash increase in share price over the next year – non-volatile and not necessarily driven by retail investors (or traders), with material gains for the (somewhat) patient.


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  • comment-avatar

    OBT / WBI has been making large losses for years . Its a directors gravy train . Just as you think they might make a profit a new tier of management is intoduced for a new division or project , to suck more blood from the carcase . The Asset valuation is a pie in the sky guess at best . The thing has been ramped to death by Tom Winnifrith for about 7 years , which should tell you all you need to know about the dodgy business of cutting down Africa’s hardwoods to produce veneer for un needed posh cars and luxury Yachts in these times of planet conservation . If you can ignore your conscience then carry on . Barge pole stock for me tho .

  • comment-avatar

    Thanks for this Joel.
    Have decided to buy a few, just to keep an eye on them. The Africans still have to earn a living and if this done sustainably then I see nothing wrong with exploiting their natural resources. I am very happy that I bought some Rockrose after reading your report of January? this year and I still hold. So thanks for pointing me in that direction.

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