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Tern issues a speeding ticket. SELL!!

By Nigel Somerville, the Deputy Sheriff of AIM | Wednesday 13 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.


Call me mad, but if I were truly part of the Global Shorting Conspiracy I would now be shorting AIM-listed Tern plc (TERN). Having stated I wouldn’t short Tern because a price can go twice as bonkers as it is already, I fancy the time has come for reality to set it. Even Tern has issued a statement saying its own board knows of no reason for the continued rise in its share price. And just for good measure, Tern tells us its cash balance sits at £1.49 million – so I have been bang on the money (and it needs yet another placing).

Tern’s share  price hit 58p earlier today. With over 225 million shares in issue, that values it at an astonishing £130 million. Yet Tern told us today that

As detailed in its portfolio announcement of 16 May 2018, the current aggregate balance sheet valuation of Tern's investments is approximately GBP11 million

I may look stupid now, but I fancy I know who will have the last laugh here: £11 million is a 91.5% drop from £130 million. That would indicate that fair value lies at around 5p – if you believe the company’s numbers and don’t apply any discount for it almost running out of cash over Christmas.

The other thing we are told is that the company has £1.49m of cash. On 3 June I stated:

Taking last year’s admin and other expenses into account, it looks to me as though Tern is already down to £0.84 million at the end of this year

On 11 June the company announced it had lent out more cash to Device Authority, to the tune of c. $304,000 – around £230,000. It’s annual admin charge and “other expenses” for FY17 was £1.03 million. Take 6.5 months to go until year-end into account and that is worth c. £560,000. And Tern is committed to ponying up a further £0.375 million to InVMA by the end of July. I make that £0.84 + £0.56 - £0.23 + £0.375 million as we are now – a total of (drum-roll please…) £1.55 million.

In other words the company is £60,000 ahead of the spending I was predicting. Has it been paying its investee companies’ bills again, I wonder?

More to the point, it puts my projection of year-end cash down to less than half a million. Bearing in mind the £1.03 million spent on admin and “other expenses” during FY17, that surely means the company will have to sell assets or do yet another placing to get its year-end accounts signed off.

The shares have fallen to 43p since the speeding ticket, but I think there is a very long way to go here.

The bulletin board morons keep on buying, but I am staying well clear.


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