Fertiliser supplier fades

Potassium digger African Potash (LSE: AFPO) collapsed 43% in Friday business, after furnishing the market with disappointing operational news.

African Potash advised that the severe drought hitting southern Africa has prompted a deal to supply 20,000 metric tonnes of urea to a COMESA customer to fall through. The client in question is still awaiting confirmation of order from its own customers, African Potash advised.

On top of this, particularly dry conditions in Zimbabwe has seen an agreement inked back in December with Windmill fall through, African Potash said.

In brighter news, African Potash also announced it had signed a participation agreement with Safyr Commodities — which itself has inked conditional sales agreements with leading Zambian fertiliser distributor Nyiombo Investments — for the supply of 50,000 tonnes of urea and NPK.

But investors have naturally given this news short shrift. African Potash is already on shaky ground, the company having seen pre-tax losses swell to $716,000 in July-December, up from $660,000 a year earlier.

Given the scale of unfavourable climate conditions on its revenues outlook, I believe African Potash is a risk too far at the present time.

Software play strides

Cerillion (LSE: CER) has seen its share price jump almost 8% today, after it advised the market that results for the first half of the year “are anticipated to be in line with management expectations.” The software play anticipates reporting that revenues and EBITDA will have advanced 11% (to c.£6.9m) and 21% (to £c.1.1m), respectively, between October and March, when it announces its interim results for the half year in late May.

Cerillion — which provides software for billing, charging and customer relationship management (or CRM) — announced in recent weeks the signing of a $2.4m contract with an existing customer which Cerillion describes as “a multi-service communications provider in the Americas.”

The company provides services for a broad range of customers in established and emerging economies alike, and sales continue to pick up speed. Cerillion currently boasts 75 major clients across 40 countries, and I expect cutting edge products like its Cerillion Skyline package to keep sales spiralling higher.

On the precipice?

I am not so optimistic over the growth outlook of Vedanta Resources (LSE: VED), however. Sure, the share price may have added an extra 33% during the past month as commodity  prices have rallied. But as I have previously cautioned, the fundamental picture for the resources markets remains less than encouraging.

Vedanta Resources continues to hike production across its main markets to offset the impact of lower resources values. Indeed, the business churned out record amounts of copper cathodes, aluminium, electricity and silver during January-March, mirroring similar measures by many of the world’s major commodity producers.

But a drastic slowdown in Chinese economic growth raises serious questions over where exactly all of this excess material will end up.

Given this backdrop, I believe recently-revived commodity prices are in danger of experiencing a severe reversal, putting the share values of chargers like Vedanta Resources in equal peril.

The post Should You Buy Vedanta Resources plc, African Potash Ltd & Cerillion PLC Today? appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The deal will see African Potash and Beryl Holdings collaborate on fertiliser operations in southern and eastern Africa. Under the terms of the agreement, African Potash will enter a long-term deal with Beryl whereby Beryl will restructure its main fertiliser trading activities into a newly-formed Mauritian company, which will become a wholly-owned African Potash subsidiary. The Mauritian company will not be inheriting or having novated to it, existing revenue generating contracts of Beryl, however, Beryl will help the company build new relationships with customers via its existing presence in the market. 

As part of the deal, African Potash is paying Beryl £8m but this payment will be issued retroactively towards actual earnings achieved. The Mauritian company needs to achieve minimum earnings before interest tax amortization and depreciation (EBITDA) of $4m in either the first 12 months after the deal completes, or second 12 months after the deal completes (first and second period) before the payment is due to Beryl. 

It’s clear that the deal announced today between Beryl and African Potash is extremely significant for the AIM minnow. African Potash is trying to build an African-focused potash company, and while management has had some success signing deals with customers for the supply of potash and fertiliser, revenue has remained elusive. But today’s deal should change that. Beryl and African Potash are now working towards a common goal, and Beryl won’t get paid unless it helps African Potash meet earnings targets. 

All in all, it has been a year of progress for African Potash. According to the company’s last trading update (before the Beryl announcement), the group is close to closing its inaugural fertiliser trade and is in discussions with lenders about the availability of a trade finance facility for $50m to fund operations. If all goes to plan, African Potash should be generating revenue and even cash flow within six months to a year, the agreement with Beryl should help speed up the group’s growth. 

Still, while the future looks bright for African Potash, it looks as if the market doesn’t trust the company to meet its own growth targets. Indeed, after rallying to a high of 3.3p in September, African Potash’s shares have languished since and currently trade 47% below their September peak. And it remains to be seen if the company’s shares can return to their all-time high of 9p reached at the end of 2011. One thing is for sure, however: without any revenue, this company isn’t suitable for widows and orphans. Until African Potash starts to generate revenue and cash, the company will remain a high-risk bet, suitable only for those investors with a high-risk tolerance. 

The post African Potash Ltd Jumps After Announcing Agreement With Beryl Holdings appeared first on The Twelfth Magpie.

More reading

• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.