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Tern – Hurrah! A contract for Device Authority.

By Nigel Somerville, the Deputy Sheriff of AIM | Tuesday 20 September 2016


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’m a bit confused by this morning’s RNS from Tern plc (TERN) which announces a contract for its “subsidiary” Device Authority. News of $300,000 heading into the coffers of the former Cryptosoft entity over the next three years will be viewed as most welcome by Tern’s shareholders.

The confusion may just be nit-picking by a bear, but perhaps the company night care to clarify something: is it a contract or is it an order, and how firm is it? When does the money flow?

The RNS is subtitled Contract win and new product,  then says it has received an order before stating that the three year contract has a minimum value of $300,000 before raising the expectation of increases in uptake (so perhaps more wedge heading its way). The customer is not named, which is a shame.

If this is indeed a firm contract all signed and sealed and in the bag then this would appear to be quite significant news, as it is an order of magnitude bigger than the previously reported minor bit of business worth around £26,000 (from memory) previously reported. One senses that having a deal in the bag will make getting more a rather easier task – London buses, and all that.

One might also hope that the announcement this morning carries a bit more credence than this one.

Of course, revenue of $100,000 a year for three years doesn’t really go very far towards justifying the £8.2 million market capitalisation of Tern, especially when one considers the part-ownership of Device Authority (although it does have a majority of the equity). But if this leads to more business then it is a welcome start.

But my biggest confusion is this, and picks up on a question raised by Cynical Bear (in turn referencing comments by Drunken Sailor) HERE. The question is when an investment company is not an investment company. Tern is an investing company, but has – for three RNSs in succession – now referred to Device Authority not as an investee company but as a subsidiary.

Since Device Authority – in the light of today’s news – would appear to be trading, should not Tern now be reclassified as a trading company?

Of course, that would entail a fair bit of cost and no small amount of paperwork as I understand that this would require the publication of a new Admission Document. With ongoing bills to pay of its own, as well as financial support to its subsidiary – or is it investee? – Tern might fancy raising a few extra shekels, especially if there is a bit of strength in its share price.

This morning’s announcement saw the shares posting a gain of 6.2% initially, but then slipped to a 2.5% drop last seen. That seems a little odd in the face of seemingly good news.

Unless, of course.....


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