By Nigel Somerville, the Deputy Sheriff of AIM | Saturday 12 August 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.
After-hours yesterday AIM-listed Tern plc (TERN) announced two fundraisings – one via Primary Bid for its own coffers and the other a proposed offering via US broker US Capital Partners for its investee company Device Authority. Let’s compare the two.
At the last count Tern plc held more than 50% of the equity in Device Authority, according to the confirmation statement filed by Device Authority to Companies House dated 14 February 2017. Tern’s FY16 accounts tell us that its equity ownership is 56.9% of A shares. There are a few classes of share, but you get the drift.
The proposed funding round for Device Authority attributes a pre-money valuation to Device Authority of $36 million, or $0.75 per share. If we look at Device Authority’s confirmation statement we find that Tern holds 18,563,594 a shares. At 75c would therefore be worth $13.9 million – about £10.7 million.
We also find that Tern holds 9,273,935 A Preference shares. At 75c a share that’s $7 million – about £5.4 million. So we might assume that Tern’s ownership, at the pre-money implied price, is about £16 million.
Bearing in mind Tern’s market capitalisation of just £9.8 million (according to ADVFN), that’s a whopping discount to the value implied from the funding round, even if we assume no value given the all the other assets in Tern’s portfolio.
Now let us turn to the Primary Bid offering, which is for shares at 6.6p (as against the Friday closing bid of 7.75p) – a 14.8% discount. Do the same to the market cap and you are down to £8.3 million.
Call me old fashioned, but that is effectively a 50% discount to the value of it’s holding in Device Authority when valued at the pre-money stage of a forthcoming equity round!
Why is Tern raising money at such a stand-out obvious discount? Surely any US invetor would be mad to sink cash into Device Authority when they can buy Tern for half the price! What is the commercial sense?
As with other companies offering things which seem too good to be true, I think I’ll steer clear already. But another point worth noting is the price that Tern has been raising cash from placings recently:
12p on 10 August 2015
12p on 19 February 2016
8p on 19 July 2016
7p on 7 October 2016
6.6p announced yesterday
Does anyone see a pattern?
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