By Nigel Somerville, The Deputy Sheriff of AIM | Wednesday 10 June 2015
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
I have just listened to what Bruce Leith, a director of Tern plc (TERN) has to say in this video from ZaksTradersCafe last Monday, 1st June. I was very interested indeed to hear what he had to say about Tern’s investee company, Cryptosoft Ltd. Did my ears deceive me, 15 minutes in? Did he really say:
We had a watcher of this business value this business (and I’m not saying this is what it’s worth)…at $75m…and that’s just a little more than we were expecting…
Really, Mr Leith? Are you sure about that? $75m?
Just to fill in the detail here, a report was put out by an American firm called Signal Hill at the back end of last year. That report was widely referred to across the bulletin boards as being an independent valuation of Cryptosoft, and that valuation had come in at $75m. Word of this spread and the share price of Tern went bonkers, peaking at almost 14p intraday on 23 Dec 2014 (up from a range of 3-4p going back to October 2014) which even at the peak only valued Tern at about £6m. In the face of a rocketing share price, Tern put out an RNS on the Monday before Christmas 2014 stating that there was nothing it needed or wanted to reveal at that time. On Christmas Eve, Tern announced a placing at 9p.
I got hold of that report, to find that the $75m referred to an enterprise value for Cryptosoft – a tad odd, as Tern had only just paid a few thousand quid for it a few weeks earlier. So I contacted Signal Hill who explained that this was not an independent valuation at all – it was a roundup of corporate transactions and the implied enterprise values paid. My maths was that the EV implied by Tern’s acquisition of Cryptosoft RNS was in the region of £50k – about $75K. So how had that report managed to come up with a figure of $75m?
They went on to state that the $75m was a typo – it should have read $75k. Simple as that. An honest mistake – and a revised, corrected, report soon followed from Signal Hill, who even gave me the source data (from the 451 service in the US) which read $75k. When we broke that story on ShareProphets the share price of Tern collapsed to an intra-day low of just 3.625p. Quite a drop! Not only that, but this was soon followed by a series of disposals by fund manager Hargreave Hale (which appears to have bought into the 9p placing) at prices around 6.5p, with the first disposal notified by RNS on 22 Jan 2015. I leave readers to draw their own conclusions.
So, Mr Leith, who is the ‘watcher’ of this business which just happens to have valued Cryptosoft at $75m, precisely the same figure in the erroneous Signal Hill report? That is quite some coincidence, is it not?
I trust that nobody from Tern plc has been going around telling people that Cryptosoft had been valued at $75m on the back of the erroneous and now corrected Signal Hill report, and is certainly not doing so now as that would be just a tad irresponsible. We wouldn’t want to suggest that Mr Leith – under the watchful gaze of his Chairman, Angus Forrest, was blatantly ramping his stock on the back of a misreported, misinterpreted and incorrect set of figures, now, would we? So perhaps we can be told who it is that really did slap a $75 valuation on Cryptosoft. I would love to know.
I note also that Mr Leith mentioned Mr Spencer Crooks, who he appeared to think, was part of Winterfloods as a supportive shareholder. I would note here that Mr Crooks’ holding of 2.06m shares before Christmas 2014 had dwindled to 1m shares, comfortably below the disclosable threshold of 3%, as announced in Tern’s RNS of 21 May. Mr Crooks will therefore have been free to dispose of his remaining holding without further disclosures as from that date. Yet Mr Leith appears to suggest that we should be impressed by the size and stature of Mr Crooks and his holding of Tern shares on 1 June. Whatever.
Tern released an RNS on 7 Jan 2015 which corrected a litany of mis-statements and errors which had been highlighted on here ShareProphets – including the disgraceful placing of Christmas Eve. I would have thought that it was impossible for the company not to have noticed why its shares had headed skywards in the wake of the erroneous and misunderstood Signal Hill report, and it could have corrected the record easily enough. Instead Tern went ahead with the Christmas Eve Placing, and I suppose by way of explanation, chose to state in its RNS of 7 Jan:
The Company also highlights that it cannot comment on external, independent, commentary, valuations or assessments of the Company or its investments
Perhaps Mr Leith – as a Director of Tern plc - would care to explain his comments about the $75m valuation of Cryptosoft made in the presence of Tern plc Chairman, Angus Forrest, in the light of that statement.
In the post-presentation chat with Zak Mir, Mr Leith comments that ‘we are quite light on portfolio at the moment and I think we need a bit more substance.’ I couldn’t possibly disagree. But under further questioning from Zak Mir, Mr Leith goes on to say:
We have a duty to be as honest, open, as we possibly can be…I think that is the integrity of the business…you have to make a judgement, as investor (as to why we would keep the company at all) about us…
I suppose that explains the restatement of share issues, the restatement of conversions of loans and restatement of Tern’s ownership of Cryptosoft, down from 95% to a 75% beneficial interest which was mostly (but not completely) given in the 7 Jan 2015 RNS after we had run a series of articles pointing out that it appeared that previous RNSs had been incorrect, as well the discovery that the $75m valuation as published by Signal Hill was an error, and should have read $75k.
So I wonder if Mr Leith will tell us who the external ‘watcher’ is, whose valuation/assessment he quotes and comments upon, despite Tern plc - of which he is himself a director - formally stating that it cannot? Will he name this mystery ‘watcher’ and provide links to any relevant documents? We would love to publish them.
Or was that just flagrant ramping based on false (and long since corrected) information? Remember, he has just told investors and potential investors of his duty to be honest and open, and talked of the integrity of the business.
Never miss a story.
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