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Tern – debtors paying up at Flexiant businesses but how much has had to be sunk in to get trading resumed?

By Nigel Somerville, the Deputy Sheriff of AIM | Thursday 21 July 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.

AIM-listed jam-tomorrow investment company Tern plc (TERN) has released an upbeat statement regarding its recent purchase of Flexiant assets out of administration. I’m sure this has nothing to do with shoring up a flagging share price as it threatens to drop below the 8p placing price announced two days ago.

We are told that over £90,000 of debts have been recovered which, on the face of it, looks pretty good against the £75,000 purchase price. One might be a bit surprised that these debts were not successfully chased down by the administrators of Flexiant, since the debtor list there was pretty substantial. Perhaps we just have to put that down the genius of Tern’s Board of directors.

This may all help to have a positive effect on Tern’s share price as it dices with the placing price at 8p announced on Tuesday: yesterday saw it spend most of the day below that price – not a good sign.

However this is all pretty small beer in comparison to the market capitalisation of about £6 million: the news that Tern’s investors want to hear is of the long-promised contracts for Device Authority (formerly Cryptosoft) of which there is, as yet, no sign.

The statement today also begs another question. Whilst we are told that Tern paid £75,000 for the assets and has now seen over £90,000 of debts recovered, we don’t know how much cash Tern has had to sink into the business in order to get trading resumed.

Bearing in mind that the placing RNS of Tuesday told us that the £525,000 (before expenses) would be used primarily to provide additional finance to develop the businesses of the existing portfolio companies one wonders whether a chunk of that was needed to put into the Flexiant assets. After all, today we are told that trading has recommenced at the Flexiant assets: was there a bit of an outlay to get that to happen? We are not told.

Whilst it is good news for Tern’s shareholders that there is a bit of cashflow, it seems to me that we’ve only been given part of the story. One might be mindful that Flexiant Corporation (into which Tern sunk £134,635 and has had to write off) collapsed into administration, along with its main subsidiary. If the business was so good it wouldn’t have gone bust!

With 6,562,500 placing shares (heading for 10% of the company) expected to be admitted to trading tomorrow and a share price struggling at the placing price, one might imagine a little bit of nervousness amongst the placees, whoever they may be.

Today’ news feels incomplete and a bit of a ramptastic announcement. Last seen, it seem to have made little difference to the share price which is unchanged.

As for the creditors of Flexiant Corporation, over £2 million of which was secured debt, they may be a tad miffed that they’ve missed out on over £90,000. Question: who sold them that debt?

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