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Tern – yet more confetti, this time at just 7p – 36% discount

By Nigel Somerville, the Deputy Sheriff of AIM | Friday 7 October 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.

Anyone who was buying shares over the last few days in AIM-listed jam-tomorrow investment company Tern plc (TERN) has just been spanked in pretty spectacular style this morning. With the shares having traded as high as 14p just last week, this morning saw a placing to raise £2.55 million (gross) at a whopping 36% discount to yesterday’s closing bid price – and a 50% discount to the peak of last week. Tern seems to be in a bit of a downward spiral with regard to its confetti issues – the previous two placings were at 8p and then 12p.

For all the positive noises coming out of the company with regard to Device Authority, its main subsidiary (or is that supposed to be investee?) – it seems that yet more money needs to be sunk in. This, despite the ramptastic raising of the prospect of dividends (see HERE), the contract (or is it an order, and how firm?) worth a minimum of $300,000 and a boardroom promotion.

I also note that Tern seems to have dropped the reference to its "subsidiary" this morning. I wonder, as an AIM-listed investment company, why that might be?

The last placing, at 8p, was just ten weeks ago or thereabouts and raised £525,000 (gross). The previous one, raising £1.1 million back in February, was at 12p. The direction of travel seems fairly clear: next stop 5p?

This morning we learn that £2 million of the new money is earmarked for Device Authority (the former Cryptosoft, which saw the departure of its founder last month) so it looks as though the company is a long way from any form of cash-generation. One wonders how long this latest injection of cash will last before the market has to be tapped once again.

We also see the appointment this morning of Whitman Howard as Joint Broker with immediate effect – no prizes for guessing who raised the new cash, then. I’m sure that the new boys’ efforts will really be appreciated by those paying up to 14p in the last week or so.

At this rate, even if Device Authority proves to be a success (and the competition in its space will surely hot up as the bigger players pay attention if there really is a mass market there), the continual dilution will surely eat up any gains to be had for Tern’s shareholders.

And if the markets take a turn for the worse and choke off the appetite for additional funding then Tern will have a spot of bother funding this cash-guzzler going forward.

I note that this morning’s fundraising did not even include any management participation. Given that there remains a fair amount of convertible debt on Tern’s books at under 2p – in favour of management – that seems a tad surprising. After all, with this morning’s dilution there is now a good degree of headroom before coming up against the 30% mark in the boardroom.

But at least the boardroom salaries and plc costs are in the bag for a while yet, eh?

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