Q: Please comment on WEF's Balance sheet and key risks facing the company.
5i Research Answer:
WEF has net debt of $55M and a long-term debt/equity of 8.5%, which is okay for a cyclical business. WEF faces a few key risks in the company’s operation such as 1) depending almost entirely on lumber prices and 2) as lumber prices fluctuate which leads to cyclicality in revenue and cash flow. 3) Cash flow was negative in 2022 and to the 12 months ended June 30. 4) Currency risk can be a factor.
In addition, the size risk is also worth considering for investors, as the market cap is quite small. This leads to more share price volatility, typically, and can also increase its cost of capital with a lower valuation.