Tern – another loan to cash-strapped Device Authority, previous repayments kicked into long grass

By Nigel Somerville, the Deputy Sheriff of AIM | Monday 11 June 2018

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 plc (TERN) has raced further ahead to a stunning 34p last seen. Well done to shareholders, and a Eurovision nul points to me. But I see no reason to change my bearish stance: the shares may have raced ahead, but this morning Tern announced another bail-out loan to investee company Device Authority and pushed back the repayment on its previous loans by another three months. We also had a Statement re Share Price Movement last Friday: the last ones we had didn’t play out at all well, did they!

To Device Authority (DA) first: another $303,954 (c. £225,000) is winging its way from Tern’s coffers to DA to add to the $360,581 lent in March, the same again at the end of December and $150,751 before that. This was all in the wake of the failed fundraising for DA last summer which never got off the ground, and the loan at the end of December was rushed over – one assumes to pay the wages.

There seems to be a pattern emerging here: every three months another three hundred and odd thousand dollars is shipped across. I suppose the good news is that the sums are just about declining, but it rather looks as though DA still isn’t generating any cash.

Happily for Tern, with repayment terms pushed out by another three months the cash counts as a current asset and DA doesn’t have to hand it back until September – when, presumably, more cash will be lent and repayment again delayed. So today is E-day

Last Friday, Tern announced a Statement re Share Price Movement as follows:

Tern…..notes the speculation regarding a new product solution between Thales Group and Device Authority ("DA")…..

Tern understands that DA is in discussions with Thales Group regarding a new product solution but these discussions are yet to be concluded and no official launch has been made.

Further announcements will be made as and when appropriate.

This speculation appears to have spurred Tern to news highs. I would note a few things, however, such as yet to be concluded, the lack of a timescale for this proposed product and there is no comment on the potential value (or otherwise!). Of course it could be good news, but since there is no clue offered, it could be very mediocre news too – even if the discussions are concluded successfully.

But I would also note that the last time we had statements re share price movement was December 2014 and January 2015. In December 2014, Tern’s stock took off because of a report in the USA which stated the Cryptosoft (now DA) acquisition was apparently valued at $75 million. The bulletin board morons had seen enough and piled in: the shares rocketed. Tern responded with:

Tern Plc, the investment company specialising in the cloud and mobile technology sectors, has noted the recent increase in its share price. The Company can confirm that, other than matters which have been announced, there are currently no other developments it wishes or needs to bring to the attention of the market at this time.

So there was nothing it wishes or needs to say to the market. Nomad WI Ireland was obviously happy with that….and Tern then did a placing two days later.

But that was not the end of it, for the $75 million valuation was just utter bollocks. In fact, as I exposed, it was a typo – it should have read $75 thousand! So Tern’s stock crashed again – but it had got its money in the bank. Nice one Tern – and a fine job by WH Ireland. Meanwhile, a mealy-mouthed statement re share price movement was issued:

As in the announcement of 22 December 2014, the Company re-confirms that, other than matters which have been announced, there are currently no other developments on which the Company is currently engaged that it wishes or needs to bring to the attention of the market at this stage…..

..and followed up with an admission that a number of other statements (exposed by me) had been a little way short of the truth.

In the light of the continued rise in Tern’s share price, if I were running the company I would be on the phone to my brokers ASAP to get a placing away. The company has form.....

At the current 34p, Tern is now valued at almost £80 million. £80 million!! I think that valuation is absolutely bonkers. But – as has happened – the share price has, in my view, been bonkers for some time and has doubled to twice as bonkers. It could go to twice as bonkers again. So I wouldn’t bother trying to short Tern, I would just stay clear.

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