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Tern – after the ramp to 27p comes the Placing at 12p. But what’s this?

By Nigel Somerville, The Deputy Sheriff of AIM | Monday 10 August 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.

Well surprise, surprise! As expected (see HERE) AIM listed Tern plc (TERN) has announced a placing in the wake of the monumental rise in the lead-up to its Interims last week, and the explosion following chairman Angus Forrest’s mega ramp of an interview with paid-for Proactive Investors. With the shares having peaked at 27p on Thursday, the company announced a placing of shares this morning – at just 12p. One might only imagine how anyone who was sucked in to paying 27p last week might be feeling now.

As I write, the share price is down 30% today at 11p (mid) - below the placing price and not a good sign. 

Of course, one cannot blame Tern for taking advantage of a strong share price so as to shore up the balance sheet. Although the Chairman’s Statement in last week’s interims noted a “healthy level of current assets” it was clear to me that the company needed to raise cash in order to meet its funding commitments to Cryptosoft whilst still being able to keep the lights on. And so now the company has brought in £720,000 before expenses (perhaps around £684,000 net). Certainly, now, the company is well enough cashed up for the time being – although suggestions of further investments on the horizon may see that change. 

What is clear, however, is that the Proactive interview was just a bare-faced ramp and now we know why. Placing discounts on AIM can be steep, but this looks particularly savage. Even against the close last Friday of 15.75p (mid) a placing at 12p is a 24% haircut. Anyone who bought at 27p last Thursday has just watched a few people walk off with about 12% of the company having coughed up 56% less per share. Now they are watching people able to buy shares 59% cheaper in the market than they did. 

As to the Proactive interview, it all sounded jolly exciting – as one would expect from a piece of PR puffery. Discussions with household names, members of the Fortune 500,  expectations of a portfolio sale in the next six months and another in the next twelve are mentioned. Maybe.  

When asked about contracts for Cryptosoft the reply was “I can’t tell you who it is talking to and signing with…” er, so there are contracts being signed? Should that not be in an RNS, then? But remember, this interview is not Nomad-approved, whereas the Interims (which were released the same day) were. The Interims referred to “major contract opportunities” – not signings. 

Of course, Tern does not own the whole of Cryptosoft – it owns 95% of the equity and is entitled to 75% of sale proceeds if/when Cryptosoft is sold. At least, that was the case and there has been no RNS to notify the market of any change there. But Mr Forrest states that Cryptosoft is Tern’s first wholly owned acquisition. Do we need an RNS on that? 

Come to think of it, what is this I see in the Interim accounts, in the statement of cashflow?

Purchase of Investments            (£74,885)

Loan to investment company   (£75,000)

Er….we knew from an earlier RNS that Tern was going to lend up to £390,000 to Cryptosoft, and invest a further £10,000 in equity. So perhaps that explains the £75,000 loan. Except it is to an ‘investment company’ rather than ‘investee company’. Perhaps I am splitting hairs and this is £75,000 of the loan package. But then what of a £74,885 purchase of investments? Has Tern bought a new investment to add to the portfolio? Has Tern invested a further £74,885 into an existing portfolio company?

The thing is this: if Tern Chairman Angus Forrest is correctly claiming that Tern now does wholly own Cryptosoft then it appears that it may have bought out the remaining 5% (and, one might presume, the right to 25% of sale proceeds) for about £75,000. 

Surely it would be a tad embarrassing if its own purchase of 25% beneficial ownership of Cryptosoft were to value the whole at just £300,000.  But then, if Tern had bought some exciting new investment, surely that would have been announced in an RNS, and to much fanfare. And if Tern had upped its stake in an existing investee company then perhaps we should have been told about that too. 

There is nothing showing on the Companies House website about any new share issues at Cryptosoft – but then if it were simply a case of Tern buying out the B-shares we would have to await the Annual Return to see that. 

Might we have a clarification RNS? Answers on a postcard…..

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