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Woodbois (LON: WBI) shares have doubled in this past month and the big question is whether they’ve got further to go. This is possible, given the interest in all things sustainable these days. But as ever there are slips ‘tween cup and lip to consider.
The underlying business is in African timber. This might be thought to be particularly rapacious in this day and age but Woodbois’ business is actually in sustainably-produced African hardwoods. There’s a large appetite for hardwoods, which is why so many tropical forests are disappearing. But then there are varied certification schemes that mark such materials as being sustainable, renewable and so on.
To the extent that the end consumer actually worries about such things then this is a good business to be in. Further, there’s very definitely that push to ESG in the investing world – environmental, social and governance issues. So, something that folk want, produced to the new rules, this could indeed be a good business.
The ongoing results are tempting enough. Q1 results showed that revenues were up by 22%. Gross profit margins also rose, to 23%. That is just the sort of thing we like to see, greater margins on greater volumes, those are financial numbers moving in the right direction. Both sawmill (ie, proper pieces of wood) and veneer production rose, by 24 and 13%. It’s even possible to note that gaining relatively more “proper wood” out of the incoming logs is a sign of increased efficiency.
All of this is positive and yet there’s a certain limit to how exciting we think a wood company is going to be. It’s all pretty old technology, a well-established market, and so on – it’s not exactly the cutting edge of high tech with those sorts of growth prospects. It’s also true that we’ve seen this sort of Woodbois share price jump before only for it to fade away.
So is it just the latest round of excitement in a share that pushes the right buttons? Or is it the start of a proper and full revaluation of Woobois’ prospects?
The nest stage of this story is really the push toward filling in the other end of the production process. Sustainable provision of hardwoods means planting – or ensuring that there is planted at least – to replace those trees cut. This could mean being paid for carbon credits – could, for this does require a rather long certification process. So too does the idea of being paid for carbon sequestration.
But note that to be truly sustainable that replacement needs to be done anyway – payments for credits and sequestration would be on top of current revenues but without a significant change in operating costs. That’s a very attractive offer, more revenue, not much more cost – if the right pieces of paper can be gathered. Which is, of course, why Woodbois is working toward those certifications.
The future price path for Woodbois shares is likely to be determined by general market opinion on how and when that new area of business will really start to collect revenues.