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Woodbois shares looking attractive for sustainable timber enthusiasts

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Activity in Woodbois (LON:WBI) shares picked up over the last week after the company’s largest shareholder, venture capital firm Rhino Ventures, changed its holdings in the sustainable timber production company.

Woodbois is an Africa-focused forestry company with an ethical bent which has been generating strong revenue growth. It is a sustainability play that has attracted investors with an environmental concern, who want to see forestry in Africa conducted in a more planet-friendly manner.  The company pursues a 23-year rotation cycle which sees it logging territory within its concession area for only three years out of 20. It also has production facilities in Gabon and Mozambique.

Woodbois announced half year results in August, reporting H1 revenue up 38% and group profits up 59%. It recorded its first ever operating profit with H1 2022 positive cash flow. Shares have, however, slumped as the inflationary fear fact took the wind out of the market for venture stocks over the summer: they are still up 15% over six months at time of writing. They are looking excellent value at 4.1p though.

There has been very little news recently from the firm, so we decided to run the company’s numbers through Deshe Analytics which gave Woodbois an overall grade of 69 out of 100 and a HOLD recommendation.

Woodbois moving in synch with the rest of the sector

Woodbois published a positive set of second quarter earnings in early August but showed no significant factors particularly remarkable relative to its peers. For the half year, the company reported sales of $11.32 million compared with $8.22 million a year ago, and while it turned in its first set of operating profits it still recorded a net loss of $0.533 million, reduced from $0.934 million a year ago.

Both the basic loss per share and diluted loss per share from continuing operations were $0.0002 compared with $0.0004 a year ago.

The company’s financials indicate solid performance in terms of growth and income and mean that the timber producer may become interesting again in the next few months. Analysing the company against its peers in the paper and forest sector, Woodbois is positioned above sector average on income and cash flow but underperforms slightly on balance sheet. Still, Woodbois looks likely to overperform the paper and forestry sector going forward, benefitting significantly from the macroeconomic environment we see now.


Pluses and minuses balance out

While higher energy prices will add to the cost of production and transport for the company the recent dollar strength will work in the Woodbois’ favour as its products are sold in dollars. This may end up being balanced out by the negative effect of rising interest rates.

Historically, the companies most vulnerable to interest rate hikes are companies that are sensitive to changes in the discount rate, companies that pay a high cost for the capital used for current operations, or companies that pay a high dividend. According to Deshe Analytics, rising interest rates will weigh on Woodbois’ performance.

There is some wriggle room, however, as Woodbois is in the process of expanding the production of its high-value veneer used for boats which could create a significant amount of income, as could its budding carbon solutions business.

The share is trading up 11.5% on the month and up 3.2% on the day at 4.16 pence.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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