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Tern – Statement re Device Authority and an acquisition

By Nigel Somerville | Tuesday 4 July 2017

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 Tern (TERN) has announced couple of bits of news this morning. The heads of terms for the acquisition of Wyld Research for its flexiOps investee company may or may not be of interest, but for £75,000 (vs £9.8m market cap for Tern) it will be a while before we can judge. In any case, the last share issue Wyld was at £35.97 per share, capitalising it at over £400,000, so £75,000 looks a bit thin. Who knows, maybe it was a bargain – or maybe it was in trouble. Of greater interest is the other announcement, which details a patent valuation for Device Authority.

It is being done with Device’s full year numbers in mind, with a view to putting an updated figure on the balance sheet for six of its 9 patents in the USA, out of 15. The figure put forward in $9 million over 5-years and $18 million over the life of the portfolio. Impressive stuff.

The problem I have is that $9 million or $18 million may well be justifiable from a point of view of the independent valuer’s perspective, but it doesn’t mean that anyone is going to pay that. Nor does it add up to sales. More to the point, the news on sales from Device has been somewhat thin.

We did also have sales news this morning, but an unnamed amount from two unnamed sources doesn’t fill me with confidence. We are told that the first is ahead of the launch later this year of a medical product later this year – so we don’t even know if it will sell! The statement that the product has the potential to ship tens of thousands of units over the coming years is a bit pie-in-the-sky for me – and what is the subscription fee?

The other contract is with an IoT Platform Systems Integrator that is launching a device asset management and analytics platform in the coming months. Device gets a % of net revenue fees, but what’s that?

In both cases, I suspect the answer may be norralot – if it was going to be substantial then surely they would have said.  

So perhaps that is why the shares are currently of by a small amount!

I can’t help but think that this patent valuation is instead of sales, to give the full year results of Device Authority a modicum of respectability.

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