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Should You Buy Tern PLC As Its Cryptosoft Ltd Unit Pushes Ahead?

Investment company Tern (LSE: TERN) is falling today despite the fact that the company’s largest investment, Cryptosoft Ltd, issued a relatively upbeat trading statement this morning. 

Cryptosoft is Tern’s most substantial investment, accounting for 95% of the company’s potential portfolio return. Tern’s other investments are Flexian, Push Technology, and Seal Software. The company owns between 1% and 0.5% of each of these businesses. So in many respects, Tern’s long-term success is dependent upon the success, or failure, of Cryptosoft. 

Upbeat update

Today’s trading update from Cryptosoft is full of good news. The company’s new management team has been in place since 1 July 2015 and is pushing forward with a new strategic plan. 

Management’s focus during the past three months has been on marketing, strategic partnerships and finding sales opportunities, several of which have been identified. And over the next four months, Cryptosoft will focus on turning these opportunities into concrete sales. 

What’s more, since the beginning of July Cryptosoft has launched a new product, the V3 Data Centric Security Platform, and has developed strategic partnerships. The V3 Data Centric Security Platform is an updated version of the V2 version, which is already in commercial use with major UK and US companies. 

Cryptosoft claims to be the only supplier with a peer-reviewed, market-proven software security product, for Internet of Things and Machine-to-Machine applications.

Four-month watermark

Within today’s trading update, Cryptosoft tells investors that the company will be looking to convert sales opportunities into bookable revenues over the next four months, giving investors a clear-cut time frame for growth. Indeed, now that the company has laid out this goal, investors have a benchmark to judge management’s performance. 

And a clear-cut goal is exactly what Tern needs to build investors’ trust. Since coming to market, the company has been shrouded in controversy, despite the fact that it has rapidly become one of AIM’s hottest stocks. 

Like all early-stage investment businesses and small-caps, Tern needs to prove to investors that it can be trusted to hit growth targets, make sensible investment decisions and build shareholder equity. So Cryptosoft’s progress over the next four months will be a crucial factor in determining whether or not Tern is set for the big time. 

High-risk, High-reward

Unfortunately, Cryptosoft’s success isn’t guaranteed. The company is a small player in an industry dominated by large tech giants. There’s nothing to stop these competitors muscling in on the company’s target market while it tries to secure contracts. The tech sector is notoriously competitive and firms need to have deep pockets to fend off the competition. 

Cryptosoft doesn’t have the financial firepower to take on the likes of VodafoneBlackberry, and Symantec, which has already secured more than 1bn IoT devices

Overall, the next four months will be a critical time for Cryptosoft and Tern. Investors could have a lot to look forward to. 

 

Not for the faint of heart

Tern certainly isn't for the faint of heart and if you're not willing to risk everything with the company, the Motley Fool's top analysts have recently identified a company that they consider to be one of the market's "top small caps".

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.