Shares in sustainable timber producer Woodbois Ltd. (LON: WBI) exploded this week after the company reported a positive set of results for the first quarter of this year.
The company which owns forest acreage in Gabon and Mozambique and focuses on sustainably producing African hardwood only became net positive during 2021 and the first quarter of this year confirmed that its operations are now solidly generating profit. Having started the week at 4.3 pence, the share price shot up 44% to 6.20 before settling back to between 5.50 and 5.70.
Revenue for the three months to 31 March increased by 22% to $5.6 million and the increase follows on the nearly 40% expansion in revenue for the whole of 2021. At the end of 2021 the company for the first time recorded a net profit of $90.7 million, up from a loss of $4.2 million the year before. The company’s product shipping was slowed down in 2021 because of Covid related issues of container access but by the end of the first quarter of this year these issues had begun to ease. Product shipping volumes in the first quarter have gone back to the pre-Covid levels.
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Woodbois investing heavily in equipment
Chief executive Paul Dolan told the Armchair Trader that the turnaround in net profit comes from investing heavily in equipment and pulling the company out of debt. “We invested almost $6 million in sawmills over the last four years and a similar amount into a veneer factory. And we will continue to invest in,” said Dolan. The mills located in Gabon and Mozambique make sawn timber used for the construction industry and veneers which go into plywood, particularly the expensive marine grade plywood. Its sawmill site in Gabon is in Mouila, 430km away from the port of capital Libreville from which the timber is exported.
Woodbois prides itself on producing its wood sustainably and leaving the rainforest in Gabon, where it operates, in as good a state as it has found it. Dolan explains: “If you imagine one hectare of forest, it is roughly the size of a football pitch. There could be between 500 to 1,000 trees growing in a one-hectare block. We are allowed to take only five or six trees from one hectare and not go back to it for 20 years. That is how the business is sustainable.”
Planning for the long haul
The company holds forestry concessions for 470,000 hectares of forest and renewable 20-year licences going out to 2036. At the end of that period the licences could be either handed back or renewed. Woodbois is planning for the long haul, possibly 40 years ahead. Each of the African okoume trees grown in those forests can produce around 10 cubic metres of timber which can fetch between $1,800 to $2,000 per cubic metre.
A large debt-for-equity restructuring helped the company pull out of the heavy debt which was weighing it down before Covid hit and helped it generate its first ever net profit in 2021. The rest of the capital structure was also simplified by removing convertible bonds and preference shares and only keeping voting shares.
“For institutional investors it meant that we could present a clean balance sheet and a simple share structure,” said Dolan. Now early stages venture capital fund Rhino Ventures holds slightly over 21%, only slightly more than the next biggest shareholder, Swiss private bank Lombard Odier.