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By Nigel Somerville, the Deputy Sheriff of AIM | Wednesday 15 August 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.
I noted last Thursday that in the wake of updated Directors’ information (Messers Leith and Ritchie having missed out ten insolvencies) and the clarification over forecasts for Device Authority that one wonders what will come out next from AIM-listed Tern plc (TERN). Well, on Monday it announced it had appointed Allenby as Nomad. What I wonder is whether WH Ireland jumped or was pushed?
Perhaps these various “housekeeping” matters are explained by Allenby doing its own due diligence - and finding WH Ireland somewhat lacking. Of course, for anyone invested in Tern they should be seen as a little more than just housekeeping, but leaving that to one side for a moment it would appear that WH Ireland has been shown to have been negligent. That would give Tern every right to sack WH Ireland, but we know from other AIM companies that you don’t change Nomad without very good reason: what if nobody else will take the job, or AIM itself gets in the way of an appointment? In any case, it is hard to see that Leith and Ritchie were going to give WH Ireland the heave-ho for failing to spot that their own CV’s were somewhat lacking!
So did WH Ireland walk, then? I note here that the appointment of Allenby was on Monday – the 13th of August. Is it just a co-incidence that exactly two months earlier on 13th June we were told via a regulatory announcement that:
Tern Plc (AIM: TERN), the investment company specialising in the Internet of Things ("IoT"), notes the recent continuation of the rise in its share price and the Board confirms it knows of no reason for the price rise, save for the ongoing developments and collaborations previously announced.
As detailed in its portfolio announcement of 16 May 2018, the current aggregate balance sheet valuation of Tern's investments is approximately £11 million. Following Tern's most recent fundraising on 14 May 2018, which raised £700,000 at a price of 18.5 pence per share, and the subsequent investment in FundamentalVR and loan to Device Authority, the cash position of Tern as of 12 June 2018 is £1.49m.
Further announcements will be made as and when required in accordance with the AIM Rules.
So the company knew of no reason for its share price exploding higher, beyond ongoing developments and collaborations previously announced. And then there is the bit about the balance sheet – approx. £11 million worth of investment (then around 5p per share, as against a share price which was a goodly multiple of that). The problem is that, as I have noted several times, we have had a stream of announcements particularly involving principle investee Device Authority telling us of developments, tie-ups and so on – but nothing about cash. So was WH Ireland concerned that investors were being hoodwinked and needed a cold shower?
More to the point, it seems that there was a shortage of stock and my assumption is that the 26p placing was completed in order to address the false market which was developing. We know that a group of investors appears to have been buying the stock aggressively and encouraging each other to hold firm in order to force the share price ever higher – a situation Waseem Shakoor likened to a ponzi scheme. And yesterday came the shock news that AIM Regulation has fined and disciplined several companies/Nomads for the third time in less than a year for various rule breaches. It’s a bit like London buses – none for ages and then three together.
Taking all that together, it seems to me that the statement re share price movement on 13 June was pivotal. My guess is that WH Ireland took fright and gave notice that it wanted out and forced the statement. Let us not forget the previous occasion when a statement re share price movement saw a placing conducted on the back of it in highly suspicious circumstances, when it turned out that the share price had gone mad because of an erroneous report in the USA. In response, Tern managed to sign up Allenby who, in the process of doing due diligence found that WH Ireland had been somewhat sloppy – hence the clarifications over the past couple of weeks.
But I’m not sure whether the June statement was really about the price running away – my guess is the false market which was developing was what concerned WH Ireland, which would have worried about the regulatory consequences of being left holding the baby. The irony is, as a result, it appears to me that it has been found negligent as a result.
None of this lets Tern off the hook, mind. If WH Ireland resigned then it is a big Red Flag for Tern, as is the placing at 26p a few days before Tern had to ‘fess up over Device Authority’s trading forecasts. It remains to be seen what the actual trading of Device Authority has been, but if it is as poor as I suspect then Tern has some explaining to do.
Of course, the BBMs think getting rid of WH Ireland in favour of Allenby is a positive. But at 20p or thereabouts, and in my opinion about four times overvalued – notwithstanding today’s ramptastic news of new investee FundamentalVR launching its virtual reality service in the USA in an announcement not signed off by the new Nomad - I still say KEEP SELLING.
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