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Tern – Waseem Shakoor taunts “ponzi”, shares continue to drift, still a sell

By Nigel Somerville, the Deputy Sheriff of AIM | Monday 9 July 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 jam-tomorrow investment company Tern (TERN) has been an amazing ride this year. Having started the year at 3p the stock went on a run all the way up to 58p, when the board had to issue a statement reminding the market that its NAV per share was still around the 5p mark. I called the stock a sell – at 43p – and now the stock is down to 25p. But it is still a sell.

For starters, 5p of NAV per share means, at 25p, the stock is still five times overvalued. Then there is the fact that Tern still needs more funds to get through the next year. And then there is the cash crisis across its portfolio as at FY17, all of which suggest a discount to NAV would be appropriate.

But the BBMs kept on buying and even after the speeding ticket from the board they kept on buying – apparently because if they kept buying the stock then it would continue upwards. And others were being invited in to this cosy cabal, which was described as a ponzi scheme by great bear Wassem Shakoor – who was short.

Wassem Shakoor may not be best buddies with the BBM community, but he does explain his analysis to anyone who will listen. And usually he is right, so the BBMs ignore him at their peril. In his latest tweet on the matter he tells us:

Well, there you have it: folks have lost their senses.

Today, Tern’s stock is down by almost half since my sell call – but there is plenty more to go. At 25p I’m not sure I would be short – I am not brave enough – but I certainly would neither hold nor buy the shares. It is a one-way bet for a trip to the poor house.

I’m not saying that Tern will not get a result amongst its portfolio, but the share price currently prices in a five-fold increase across the whole portfolio – a portfolio which is guzzling Tern’s cash at a great rate of knots and so far has simply not delivered. But as is often said in the ShareProphets part of the universe, the share price may be bonkers but there is nothing to stop it going twice as bonkers. I fancy the danger of that has somewhat reduced given that the bubble has at least partially popped, but that is why I wouldn’t want to be short right now.

But I certainly do not want to hold the shares. As such, the stance remains sell with a target price of (being generous) 5p.

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