Member Info for Velo

Concludes > > >

2)
* It fails on: Is the rate of depreciation stable or increasing?
Rule: Depreciation Index Last Yr < 1.039 Fails with Depreciation Index Last Year: 1.5

A Depreciation Index value greater than 1 may indicate that assets are being depreciated at a slower rate, potentially in order to manipulate earnings. Indeed, companies can slow the rate of depreciating by revising upwards the estimates of assets' useful lives or adopting a new depreciation method that increases earnings. Professor Messod Beneish conducted a study which found that the average Depreciation Index for companies that were not manipulating earnings was 1.001, as compared with 1.077 for earnings manipulators.

3)
* It fails on: Are sales, general and administrative expenses under control?
Rule: SGAEI Last Yr < 1.0475 Fails with SGA Expenses Index Last Year: 1.1
A disproportionate increase in SGA is viewed by analysts as a negative signal about a firm's future prospects. Professor Messod Beneish found that the average SGA Expenses Index for companies that were not manipulating earnings was 1.054, as compared with 1.041 for earnings manipulators.

4)
* It fails on: Are accruals low as a proportion of total assets?
Rule: Accruals to Assets Index Last Yr < 0.0245 Fails with Accruals to Assets Index Last Year: 0.24

Excessive accruals may mean that managers are making discretionary accounting choices to alter earnings. Professor Messod Beneish found that the average Accruals to Assets Index for companies that were not manipulating earnings was 0.018, as compared with 0.031 for manipulators.

-------------------

Summary
It was cleared on the other 4 metrics.

But such was the failure on the 4 metrics above it was rated at an 86% probability of manipulating earnings.

Thus achieving an overall M-score of -1.04 when the rule is to be not under -1.78

(ie., a positive number or minus between -1.78 and zero puts it in the frame as highly probable manipulator of earnings).

CONCLUSION:
WBI IS registering as at risk of manipulating its earnings. Nothing might happen for years. But something nearly always does occur, might be mild or not mild.

ie., cash flow problems might be at the bottom of it all, if it turns out nothing to do with manipulation of earnings.

Nonetheless, THAT is what it's showing, that is what it's saying.
------------------------------

Or - the massive one-off special net profit last year that dwarfed the revenue is causing concern for the M-Score.
I’ve emailed for a further explanation from the company on that one-off massive net profit, as it would appear to be a paper-only profit drived from their valuation of hectares of forests - not actual net profit per se.

This suggests maybe it should in some other area of the accounts as showing straight down at the bottom line is supposed to be net, tax-free, available profit.

The metric used is the Benish M-Score and comprises of 8 measuring metrics, which are -

1) Days’ Sales in Receivables
2) Gross Margin
3) Asset Quality
4) Sales Growth
5) Depreciation
6) Sales, General and Administrative expenses
7) Leverage
8) Total Accruals to Total Assets

Here's a fuller description of each:

1. DSRI = Days’ Sales in Receivables Index. This measures the ratio of days’ sales in receivables versus prior year as an indicator of revenue inflation.

2. GMI = Gross Margin Index. This is measured as the ratio of gross margin versus prior year. A firm with poorer prospects is more likely to manipulate earnings.

3. AQI = Asset Quality Index. Asset quality is measured as the ratio of non-current assets other than plant, property and equipment to total assets, versus prior year.

4. SGI = Sales Growth Index. This measures the ratio of sales versus prior year. While sales growth is not itself a measure of manipulation, the evidence suggests that growth companies are likely to find themselves under pressure to manipulate in order to keep up appearances.

5. DEPI = Depreciation Index. This is measured as the ratio of the rate of depreciation versus prior year. A slower rate of depreciation may mean that the firm is revising useful asset life assumptions upwards, or adopting a new method that is income friendly.

6. SGAI = Sales, General and Administrative expenses Index. This measures the ratio of SGA expenses to the prior year. This is used on the assumption that analysts would interpret a disproportionate increase in sales as a negative signal about firms future prospects

7. LVGI = Leverage Index. This measures the ratio of total debt to total assets versus prior year. It is intended to capture debt covenants incentives for earnings manipulation.

8. TATA - Total Accruals to Total Assets. This assesses the extent to which managers make discretionary accounting choices to alter earnings. Total accruals are calculated as the change in working capital accounts other than cash less depreciation
.
The eight variables are then weighted together according to the following formula:

(This is where I save your eyes from bleeding. I use an algo - I don't trust myself to accurately spreadsheet it myself).
So we'll go straight to the findings -

1)
* It fails on: Are receivables increasing in proportion to sales?
The rule is DSRI Last Yr < 1.248 And it fails with a score of 1.3

The Days Sales in Receivables Index can be used to gauge trends in the earnings quality of a company. If the index value is greater than 1, this indicates that receivables are higher this year compared to last year. When receivables constitute a higher portion of sales, earnings are likely to be less sustainable and are considered lower quality.

( Continues > > > )

WBI Red-flagged as 86% more likely than not, to be an earnings manipulator?

Preamble:

What I'm about to reveal is circumstantial and not proof of earnings manipulation but it does highlight the same characteristics that are seen in convicted earnings manipulated stocks. It's obtained by using the Beneish M-score. It's a method developed by a professor of finance that has stood the test of time.
Indeed, Google and you'll come across a group of college students from Cornell University in the US, using the M-score who correctly identified Enron as an earnings manipulator.
Wikipedia says of it:

" Enron Corporation was correctly identified as an earnings manipulator by students from Cornell University using M-score. Noticeably, Experienced Wall Street financial analysts were still recommending to buy Enron shares at that point in time.”

It's not as Hollywood movie dramatic as that. The truth is they highlighted it 3 years before it collapsed, as at risk
- not that it would implode, as it did so, virtually overnight.

However, the same methodology is registering WBI as having an 86% probability of manipulating the earnings in its reports.

Does that mean that WBI is in danger of going to the wall? Not a bit of it. (Although it does have quite a concerning cash flow problem)

A company can be doing quite reasonably but the management can for reasons of greed/fear, 'sex-up' the accounts to bolster the share price, or earn themselves bonuses etc., Doesn't mean a company is not making profits.
.
(Don't confuse with such as Passteriste which was outright criminal fraud).

For instance, Tesco is highly regarded and always has been, but cast you mind back half a dozen years ago and it's execs was convicted of earnings manipulation which carried a criminal conviction/punishment.

However a-then recently introduced financial regulation saved one or more of the execs from a custodial sentence (but not from fines) as it allowed the cancellation of criminal charges if the company involved accepted a fine.

Tesco unsurprisingly accepted the fine and did not contest; they were also fined to reimburse investors who may have been misled in the qualifying years (Tesco moved millions of income from one account year to another year, to bolster the share price
- and that income was derived from charging suppliers shelf-rent for the privilege of Tesco placing their goods on its shelves).

Execs were fired etc., but Tesco the business, apart from suffering a declining share price for some time, carried on without losing its customer goodwill. It was profitable anyway.

It's the management that face the brunt of court action - not the company
- if proven, that is!

That preamble over, I'll begin straight after this, on a fresh post. It may make your eyes bleed as it might be a little heavy going at times.

(Concludes: Part 2 > > >)

. . . So "not yet cash flow positive"?
I THOUGHT there MIGHT be a shrinking liquidity problem - and now it's admitted in this very month's RNS!

Now that's not a crime.

So you can see my angst in finding the right word to describe what's going on. Even if this turns out to be a case of mistaken identity, these reports ALWAYS have a bad way of highlighting something undesirable making itself felt eventually.

And IMO that means investors sooner or later are going to be tapped on the shoulder to accept another share dilution by a placement cash raising exercise.

My finger-pointing/waving, mark my words moment:
- They'll-be-back-asking-for-more-cash.

'Cos that's their hobby - burning through cash!

- Look what happened to the SP at the 6p placement. It plummeted straight after, winding its way down to the 3p-ish area.

Coincidence?
Why did it rise so dramatically high, and so quickly too, beforehand to 7.75p approx?
Or might be a genuine reason.

The board have awarded themselves performance shares as all companies do, based on operating targets, nothing wrong with that - and additionally - for meeting 'SHARE PRICE ' targets too.

Usually the SP targets only need to be attained and held for several months to qualify. With such a poor cash position I hope they aren't comparable in % terms to more successful companies - so I would hope if they inform the public that something like the price targets must remain above a certain level for a year, first of all. That's harder to manipulate.

That here today gone tomorrow, 6 month's in the job only CEO, was awarded loads of shares on his appointment.
I hope he wasn't allowed to keep them, but no one's been told of the arrangements/ maybe it was part of his severance package?

Does all the above (and what's posted next) mean I'm not buying?
Well yes and no.
They are making good gains this year perhaps up to $200,000+ net profit is on the cards and $4m net profit is penciled in for next year (Is that the long awaited start . . . or to be never arriving more jam tomorrow instead?)

See how that $90m net profit for last year can mislead expectations amongst the unwary, with just a quick nonchalant glance? It was several times larger than revenue!

Right - onwards to start the Red Flag post, propa.

Waited for the weekend so that this doesn't clog up the main forum.
Was hoping a few odd posts would have appeared to provide space between my older post below and the slew of A4 sized posts that now follow:

If that thought makes your eyes spin round like the cherries in a one-armed-bandit machine fear not, I'm tied up elsewhere after the Bank holiday, so won't have time for any more posts.

Before commencing, I'll get this off my chest first -

Been tussling for the right word to describe my opinion of the accounts, so see if posting this can clear matters.

Basically, the accounts have been picked up by an Algo, The M-Score (Google it, but I will explain in further posts, next) as being deemed as 86% more likely than not, to be manipulating earnings.

That's not me saying it - but an algo. But it set me looking.

It's possible the on-paper-only not-cash gigantic $90m showing as the full year's net profit has upset that algo. So been checking to try and eliminate that concern. But it just gets worse.

Even the CEO/Chairman admits WBI is not yet cash positive; code for - they're having trouble paying their bills as the income is out of synch with due bills. Paper-value-rich but cash-poor.

So there is something in that M-Score after all. All you hear about is great improvements.

Not having a decent cash flow - is the road to insolvency if left unattended to
- that needs fixing, fast!

Where's the big essay from him on repairing the cash flow? It's all: look how great we are. %up on this & %up on that.

Yes everyone can see revenue growing - now monetise the damn company! They've had 12 years to get some profit going!
Show me some (net) profit - every year, not once or twice in a blue moon!

Although I've written to the CFO, there is an admission that the net profit is not entirely, err... how shall I put this? Not entirely kosher?

There's several para's in the RNS results, excusing away that those using traditional analysis on WBI (ie., me) will find it may not be appropriate as they have used IFRS guidelines for reporting in some cases - but in many other cases throughout the accounts - they have not.

Eh! You wot?

Then when it comes to the record-breaking $90m net profit they claim they've HAD to show that non-cash portion ($88m) in with net profit as a result of 'bargain bought' - because the IFRS regulations demand it!

That's having it both ways!

Half IFRS when it suits - and half non-IFRS when it doesn't.

AIM and these speculative foreign stocks listed on the UK market tsk! A law unto themselves.

I was going to post the relevant para's on IFRS from that trading update but that's another A4 page I've deleted to save your eyes, but you'll find it in the full annual accounts summary in the RNS (click RNS up above).

So "not yet cash flow positive"?
It looked like there MIGHT be a shrinking liquidity problem - and

Continues a bit more > > >

. . . a close in the higher end 90's minimum
- with a wee outside chance, of a close in the triple figures

- if the sun, an all that is shining.

Well that 6.06 fell nicely into my personal expectations. All should be happy with that. Very positive. All set up for further bullish performance for next Tuesday.

I’m thinking 6.3’s up to 6.6 max by close of Tuesday.

Not expecting a close back in the 5’s, but if that should be the case then weak possibility of higher-end 5’s down to mid 5’s is the worst that could happen.
- But 6’s should rule on the day – minimum (All IMO only, of course :)

The first big test of this year is the high end 7’s (call it 8p for easy reference)

I expect on current performance –
a) For it to be taken
&
b) The first heavy skirmish of tooing and froing to achieve it.

Don’t think it’s a major target, just a decent sized test.
Take down 8p and the serious major targets await.

It’s THOSE targets that could force a turnback that fits in with the past 12 years long term slide if this trend melts away. That’s where attention should focus - not 8p, as that’s just the Start Line!

Will mention all those (IMO) targets if the above for Tuesday transpires, and if I return to this forum after my week & half trip up north next week.

The Bank Holiday weekend approaches so will back up my dump-truck and unload my big Red Flag post when no one’s about, thus not blocking the daylight for those of you wishing to post/banter and see responses :)

Thank you for your contribution, BC100.

I eagerly look forward to your Woodbois-centric contributions, even more.

Nice summing-up article under the ' Share News' button up above.

Devoid of opinion, just a succinct, neat summing up of the Q3 report's main key points in a nutshell.

Typo! Thumbs up "from"

- not "for".

It doesn't.

It's my personal analysis of adding the Q3 results to the H1 result and getting a thumbs up for the CEO's comments of HIS expectations for Q4 performing to market guidance levels.

94's now. It'll display up above shortly. Good riddance to 80's - And don't dare show your face here, ever again!

Is it safe to blow a raspberry, saying feck-off to the 80's for good?

Yeah the market likes :)

Running @ 92p - live prices currently

Brief perusal of the Q3 and net profit is my main interest, and roughly after Q3 performing well, the market's full year guidance is on course not only to be met but do a "beat" and exceed market expectations by the full year end.

- Optimistic for the SP today :)
(Unless the market focuses on the ongoing feed quality issues).

Yes M/wmug - 6p.

You're thinking you saw the high at 6.10 for awhile, no?

There was a point when I saw 6p but this site was already showing the day's high as 6.10 and I thought: must have occurred when I was tied up elsewhere.
BUT at the back of my mind was that this site is notorious for incorrect logging of the day's close and day's highs/lows.

Yahoo Finance can be no better as it too will do the same. (And is showing 6.10 as the day's high).

So in cases like this, I always go to the font of all knowledge - The god of all UK prices - The London Stock Exchange itself!

- The exchange that sells its price actions to the rest of the world of what really occurred -

https://www.londonstockexchange.com/stock/WBI/woodbois-limited/company-page

- And it's showing 6p as the day's high.

The final proof is that after seeing 6.10 was the day's high here on this site, by close it had altered it, to read what you see now - 5.96
(It does that a lot too).

Just out of interest, it was 6.10 that you were intimating at, right? :)

PS. I get my live prices (free from delayed prices like this site and other free sites) from the US because I get a cheap deal with my charting package - but WBI is too small for them to bother with; happens a lot, so contacted them earlier today requesting WBI as part of their catalogue - they usually agree. Fingers crossed as I'm blind without my charting platforms and live prices.

And I hate Tradingview.com/UK - the only other viable option. Can't abide it!

" Great day, tomorrow will be interesting."
-----------------

I concur - As in yes it was; and yes it's going to be.

I also, won't be surprised for a close on the nose of 6p tomorrow. If so, that will be a much stronger, more solid, 6p going into next week than the 6p that the beginning of this week brought in.

It's an important shift. Tomorrow, I don't expect a close commencing with a 5.

If that occurs then my calcs are all up the swanee as the metrics involved are not designed for under the radar small caps, so will be most pleasing to me if tomorrow closes no less than 6p.

Can close a bit higher if it wants to, but I'm not expecting anything higher than 6's.

Lucky you's. I'm still in the suspicious stage.

If I do take a position it will be light of foot, with a trader's hat on, rather than an investor's hat on, as still got a lot more digging to do.

Hi ChrisTmoc,

Thanks, I've already fired off an email to Carnel Geddes the CFO enquiring about the sparse entry that was added in to Net Profit of an item written by her as -
" . . . $88.3m gain on bargain purchase "

If I get a response I will advise accordingly.

As for the CFO it's the chairman I prefer to reply as the query surrounds the former CEO.

And as both roles have previously been held by one person (intolerable and goes against the regulations for protecting investors' interests) I'm wary of asking a current CEO to comment on a former CEO.

The chairman as the spokesperson of the BOD is responsible for investors' interests - not the CEO.

If that high 5.80/90's holds into close after all the trailing auctions are in and updated, then that's a good indication to expect further bullish progress tomorrow (Friday) and possibly end the week on a high note.

However, all the tools at my disposal are destined to fail when applied to the under-the-radar of the market, micro-caps such as WBI.

They work fine on the big MCap beasts because sentiment plays a stronger part. And you can measure sentiment. Well, I attempt to measure it :)

But these micro caps react better to fundamentals more than to sentiment.

- So this past few days I've been quietly rating the likely direction of the SP to see if my stuff is inadequate to monitor WBI.

For today, I had a strong magnetic adherence to the SP remaining solidly a prisoner of all fractions (up or down) within the 5p area.

No 4p closes or 6p closes - all the action to take place within the 5p range and close within the 5p area.

So I coughed and almost spilt my coffee this morning when I saw 6p intraday up on the screen, and was prepared to admit defeat with these little AIM stocks.

However, I reminded myself my calcs are for End of day closes and not the intraday travails.

So if the SP remains in the 5p area but near the very top of the 5p range then I'd be prepared to stick my neck out and call for a further probability of bullish performance tomorrow.

So if tomorrow the SP does the opposite and closes in the low-end 5p's - or lower, none will be more surprised than I.

But first let it close the day, and see what's what.

Thank you kindly Mozac & Maragon,
- but I would advise holding your evaluation until you see the upcoming 'red flag' post as you may then hold a less generous opinion :)

It is a very bearish post and I've refrained from posting it last night as it too, is a couple of pages long (trying to shorten it) and didn't want to clog-up this forum with my long-winded monologues.

Still undecided whether to post it later tonight, or leave it until the weekend, where not many will be posting, so it "wouldn't get in the way" :)
Weekend - or tonight? Which?

Won't be posting heavily after that.
In the meantime, I'm considering emailing the CFO and the Chairman with a couple of questions that seriously concern me, rather than wait until the next video presentation where questions can be pre-submitted.

Think I'll fire off those 2 emails today, before the week closes.

- Calisto, Good point.
I think that's definitely the case with the pre-2014 accounts as all stock market financial trading reports now fall under the strict IFRS standards, and previous reports need re-stating to correspond with the continuity of later reports.

However, the sudden appearance of that 'additional' $88m net profit in the full year accounts, is I think an error of allocation in the accounts.
Should it have been diverted through EBITDA (amortisation?) and Free Cash Flow metrics?

Dunno, so I'm going to email her (the CFO).

BT for instance sold their BT Tower in London (a worldwide landmark in its own right) as a cash raising exercise for £210m back in 2019/20. It would have been overwhelmingly all profit as it was built in the 1960's. Yet nothing appears in the net profit heading. BT carried on with it's normal 2019/2020 net profit.

Yet Woodbois bung all their profit from their ahem: "bargain" (their strange terminology not mine) directly down in the net profit, which is supposed to be net of all taxes.

I need more info on that before investing.