Cyan C3G Fund Newsletter – 30 November 2015

09 Dec 2015

The Cyan C3G Fund delivered a positive return of 2.3% for the month of November 2015, taking the quarterly return to 18.6% after all fees, and approaching 50% (after all fees and charges) since its inception just 16 months ago. The Fund continues to outperform all relative benchmarks and comparable funds.

In the past 12 months, the Cyan C3G Fund has gained 47.0%, well ahead of the All Ords Accumulation Index’s modest 3.1% rise, highlighting the outstanding returns that can be generated from selective small cap equity investment.

Full report: Cyan C3G Monthly NOV 15





Fund Performance

In terms of the month’s performance, the main contributors included:

Bellamy’s (+44%) – Positive sentiment around Chinese demand for infant baby formula provided a strong tailwind for the share price of Bellamy’s. On a more fundamental level, the company announced that it has secured significant additional manufacturing capacity having signed a new agreement with its manufacturing partner Fonterra. That said, the short term valuation metrics now look stretched, so we have reduced our exposure accordingly whilst still maintaining a smaller holding due to its long term growth prospects.

M2 Telecommunications (+12%) – The merger between M2 and Vocus Communications is likely to be one of the final plays in the recent consolidation at the bigger end of the telecommunications industry in Australia. Again, from a valuation perspective the sector is, in our view, now looking close to “full”.

BlueSky Alternatives (+11%) – As we expected, positive AGM comments around the performance of BlueSky’s suite of funds and its positive ongoing FUM flow highlighted the growth potential of this alternative asset class manager and was likely the driver behind the share price strength. We expect to continue to see strong growth in funds under management in the short and medium term and maintain our core position.

Opus Group (+12%) – The market seems to be starting to recognise the inherent value sitting within this print and publishing business (even though it operates in a much unloved sector of the market). In our view, the turnaround in the operating business has just begun and the upcoming financial results will illustrate how cheap it actually is.

We also enjoyed some strong returns from more recently listed companies including PWR Holdings (PWH) and BWX Ltd (BWX). Other new positions we took include cleaning and security services provider Millennium Group (MIL) and intellectual property services firm IPH Ltd (IPH).

As always there are some detractors to overall Fund performance. This month we suffered negative returns from the following:

Capitol Health (-21%) – Share price performance was further impacted by an impending government inquiry into imaging referrals, which appears to be having an ongoing impact on the volume of imaging scans for the business. The stock has been under pressure for much of the year but fortunately we had not added to our holding during the weakness and as such the impact to the Fund overall was limited to less than 0.2%

Speedcast (-11%) – Having performed very strong since its listing 12 months ago, satellite communication services provider Speedcast, was sold down from its new high in early November. We assume this was as a result of profit taking and speculation around an impending capital raising. We remain confident in the medium term outlook for the company, and as such, have maintained our position.



We reiterate our comment from last month:

“Whilst we wouldn’t suggest the market is primed for a large pullback, we are conscious that the supply side is at risk of overwhelming the demand side given the sheer number of capital raisings that have come across our desk in recent weeks”.

Fundamental value in high quality cash generative businesses is becoming more difficult to find. That said, we are comfortable with the position of our portfolio and continue to actively seek investment opportunities.

Our Fund is positioned conservatively and we have taken some profits from the stocks that have gained ground as they approach our company specific valuations. The Fund holds a cash balance of ~35% accompanied by a well-diversified portfolio of companies. The profile of the companies is skewed towards growth, but they are generally cash generative with relatively strong rates of return on equity and still in the lifecycle phase of reinvesting.

We sincerely thank our investors for their ongoing support and look forward to providing further updates.