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Tern – Cryptosoft update, where are the numbers?

By Nigel Somerville, the Deputy Sheriff of AIM | Tuesday 1 March 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.

This morning saw AIM-listed investment company Tern plc (TERN) release a terribly exciting RNS. Lots of buzzwords: IoT, M2M, PKI, CA, and now Symantec and its RoT. It is all such a thrill: a tie-up with Symantec! Wow – that’ll surely bring in stacks of revenue. So why are there no numbers?

I asked after the last Cryptosoft update when the placing would be. We got the answer last week – at 12p – and last night Hargreave Hale was announced to have taken a slug of it, upping its holding from 1.3 million shares to 4.4 million. Institutional support is, of course, sometimes a good sign so maybe we can all get excited about that as well as Symantec.

But HH was selling for most of last year. It held more than 9 million shares in Jan 2015 and was announced to have dropped to 2.7 million at the end of November. So yesterday’s holding in company RNS meant that it had dumped a further 1.4 million shares between the end of Nov 2015 and last Thursday when the placing shares arrived. With this morning’s financials-free RNS excitement one wonders whether HH will simply be looking to make a quick, ahem, Tern.

As at FY15 Tern’s net assets per shares stood at about 2.7p. That will have gone up a little after last week’s placing at 12p but at 13.25p (last seen) there is an incredible amount of hope in the share price.

And whilst the NAV per share may have progressed since FY14, it seems to me to be entirely due to the confetti-fest at a substantial premium to net assets (although at a discount to the prevailing share price, natch) rather than value being added to the company’s investments. Indeed, if one strips out the effect of the 2015 share issues we find that NAV per share actually dropped during 2015 – see HERE.

Now it could be that Cryptosoft suddenly starts signing big contracts and revenues race ahead. Or it could be that it does not. But given the current market capitalisation versus assets of Tern, success looks to me to be very much priced in, but the downside is not. And right now it is all firmly in the field of jeux sans revenue.

It’s all hope and hype for now, so for all the excitement I think I’ll give it a wide berth.

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