Joel’s Resource Report – from small acorns grow mighty investments #WBI

Joel’s Resource Report – from small acorns grow mighty investments #WBI

Hi All, I hope you’re doing well. I’ve managed to get out onto my bike a couple of times and enjoy myself in the rain.

From a portfolio perspective, I rebuilt a (for me) significant position in Woodbois over the past week. Woodbois is an AIM listed timber resource company which I’ve previously covered for Cube.

Since covering them, it’s fair to say that my prediction that Woodbois would do well over the following 6 – 12 months was completely incorrect with the shares trading at less than half what they were a year ago.

My rational which suggested that Woodbois would likely generate $20 million in revenues was pretty accurate with revenues of $19.5 million for 2019 announced in the audited results a 45% year on year increase.

Why have Woodbois shares tanked?

I believe there’s two primary reasons:

Woodbois shares are illiquid and never really recovered from the likely covid collapse. The shares did bounce back but never towards where they were:

(Source: Google)

Woodbois announced a placing and a massive debt for equity swap at 2p.

The company now has 2,115,938,857 shares in issue at 2.6p to buy Woodbois has a market cap of £55 million.

Balance sheet restructuring transforms Woodbois potential

Previously Woodbois revenues were being used to pay debt including at a whopping 11.5%. Additionally funds will be used to significantly increase and further fund production capabilities in Gabon, thereby increasing capacity, throughput and margins by investing between US$3 million to US$4 million in equipment and infrastructure.

CEO Paul Dolan said:

The proposed Fundraise and Debt Restructuring will transform the prospects for the Company. The Placing allows for the parallel conversion of approximately $30 million of debt and obligations into equity, as well as the full elimination of the high cost 11.5% ITF, with consequent benefit to our cash flow and profitability. It enables the Company to also drive its growth by expanding capacity and margins in Gabon, rapidly grow its trading activities and profitability. My proposed subscription in the Fundraise of $0.3 million reflects my confidence in the business and its prospects. On current expectations, I am confident that we can turn cash flow positive by the end of 2020 and am extremely excited by what lies ahead. Moreover, we are looking to position the Company such that it can start repaying its shareholders through an attractive dividend policy following the 2021 financial year and beyond.

Reasons I believe Woodbois will have it’s best ever year
  1. Lumbar prices are at all time highs – up more than 100% year to date. 35% of Woodbois revenues were from timber/lumber operations with prices up 100% margins should’ve exploded.
  2. Debt dramatically reduced – reducing debt repayments.
  3. Mozambique operations restarted – back in 2018 Mozambique implemented stricter rules due to illegal logging and export of certain hardwood species. This ultimately led to the mothballing of Woodbois operations. In March Woodbois entered into a three year management agreement with “Future Earth II LLC” where they will “fund, manage and operate Woodbois’ Mozambique concessions, employees and equipment, in order to produce sawn lumber and veneers to be sold by Future Earth on a profit share basis”. I view this as free additional upside
  4. Despite Covid Q1 revenues were up 10% year on year – Whilst Q2 will’ve been negatively impacted due to lockdown given that timber prices are rocketing I expect the rest of the year to more than make up for reduced Q2 revenues.
  5. Timber trading division revenues up – given that timber prices are rocketing one could reasonably expect that Woodbois time trading division will be doing a roaring trade.
  6. Margin expansion – in Gabon through the aforementioned investment in production facilities.

Woodbois and management have done a horrendous job of delivering shareholder returns to date but with lumber trading at all time highs, margin expansion, investment and a cleaned up balance sheet it may finally be time for Woodbois to shine.

Till next week!

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    Hi Joel,

    Interesting article, I have been watching the recent price action from the sidelines on this one.

    Do you see a risk of timber prices reverting to the mean if Covid related supply disruption is the cause of the increase. Or greater supply coming to the market.

    Would this drastically change the investment case?

    Dexx

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    Oh Cripes ….. its a directors gravey train thats been going for years in various names and dabling in various things . The balence sheet is a work of fiction , its a serial shareholder value destroyer and destroyer of African hard wood for veneeer for posh cars dashboards . Save the planet and boycott it . Worse still its one of Winifroths continuous multi year promotes and the more he “pushed it” the worse it got SP wise . If it does well from here it will be at the expense of the planet ….a dirty filthy business just like cigerette companies . Sleep well.

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