Company Overview
Tern PLC (LON:TERN), operates a hybrid venture capital model that focuses on disruptive Internet of Things (IoT) start-ups with proven technologies. As of 31 December 2023, the company’s market capitalisation stood at £12.1 million, with a net cash position of £0.3 million and an enterprise value of £11.8 million. The company is led by Chairman Ian Ritchie, CEO Albert E. Sisto, and CFO Colin Nunn.
Key Performance Metrics and Financial Health
Tern’s financial year 2023 (FY23) results demonstrate significant improvements in key performance indicators (KPIs), although the company has faced valuation challenges in a globally depressed technology sector. Despite these headwinds, Tern’s portfolio companies have shown substantial commercial traction and growth in annual recurring revenue (ARR).
- Annual Recurring Revenue Growth: ARR increased by 50% in FY23, with a concurrent 51% rise in ARR per employee.
- Portfolio Valuations: However, the overall valuation of Tern’s investments declined by £11.1 million due to various factors, including investment disposals, foreign exchange impacts, and negative movements in fair value of investments.
The financial summary indicates:
- A total comprehensive loss of £12.6 million for FY23, primarily due to net negative fair value movements.
- Net assets fell to £12.5 million, a 50% decline from the previous year.
- Year-end cash balance stood at £298,000, down from £932,000 in FY22.
Operational Highlights and Portfolio Performance
Tern’s portfolio companies have made significant strides, each carving out leadership positions in their respective markets:
- Device Authority: Valued at £4.4 million (down from £11.9 million), Device Authority has expanded its ARR significantly and aims to triple it in the coming year, driven by strategic partnerships with major players like Microsoft and Entrust.
- Wyld Networks: Valued at £2.4 million (down from £6.0 million), Wyld Networks has launched Wyld Fusion, a hybrid terrestrial and satellite platform, and begun shipping Wyld Terminals. Its total addressable market is estimated at $4.3 billion.
- FundamentalVR: Maintaining a valuation of £3.6 million, FundamentalVR has seen continued ARR growth and strong client retention, with notable partnerships in the medical field and visibility in Meta’s global campaigns.
- Talking Medicines: Increased in value to £2.0 million from £1.8 million, Talking Medicines leverages AI to source patient feedback and has successfully expanded into the US market with a growing SaaS subscription base.
- Konektio: Written off with no current valuation, reflecting its entry into administration.
- Diffusiondata: A minor investment, valued at £0.02 million.
- SVVUK: Valued at £0.3 million, up from £0.1 million.
Expert Analysis by Progressive Equity Research
According to Gareth Evans, an analyst at Progressive Equity Research, Tern’s FY23 results highlight a notable improvement in performance metrics, which is expected to attract additional strategic interest across the portfolio. Evans notes that despite the significant improvement in performance metrics, the valuation decline is reflective of broader market trends in the technology sector. He emphasises that Tern’s funding-to-exit model requires patience, with all portfolio companies now firmly into their growth stage and leaders in their targeted markets.
Evans comments, “Tern’s strategy of focusing on high-growth sectors and supporting entrepreneurs with essential capital is showing results, despite the challenging economic environment. The company’s emphasis on expanding sales operations and securing strategic partnerships is key to its future success.”
Strategic Outlook and Future Prospects
Tern’s management remains committed to pursuing high-growth opportunities by supporting entrepreneurs with necessary capital while driving value creation through strategic exits. The challenging economic environment necessitates a focus on sustainability and reducing burn rates, rather than aggressive market dominance.
The company’s strategy emphasises:
- Expanding sales operations to enhance market presence.
- Participating in fundraises where possible to avoid dilution.
- Negotiating favourable terms with new investors to facilitate successful exits.
Despite the valuation challenges, Tern’s portfolio companies are positioned for substantial growth, with significant momentum as they enter the next phase of their development.
Final Thoughts
Tern PLC continues to navigate a complex and evolving technology landscape, leveraging its hybrid venture capital model to support and grow disruptive IoT start-ups. The company’s focus on improving KPIs and strategic partnerships positions it well for future growth, although the near-term outlook remains tempered by broader market valuation trends. As Tern’s portfolio companies mature and achieve further commercial traction, the potential for value creation remains substantial, offering diversified exposure to innovative IoT-related assets for shareholders.
Evans concludes, “We remain optimistic about Tern’s outlook. The efforts to date have propelled key portfolio companies to become technology leaders. As these businesses work with investment partners to achieve additional recognition and scale, we see huge potential in the next phase of growth.”
