Cyan Newsletter – 31 January 2017

08 Feb 2017

We are pleased to report that the C3G Fund delivered a 1.9% gain in January, well ahead of the Small Industrials Index that fell 3.8%.

Full Report: Cyan Monthly Jan 2017

The Australian equities market, in our opinion, remains challenging, particularly at the smaller end. Over the past 4 months there has been a notable rotation in investor sentiment from smaller to larger companies. Since October 2016 the Small Ords has retraced 5.6% whilst the ASX 200 has gained 4.1%. We have also seen resurging interest for mining companies with the Small Resources Index gaining 10.8% since October, whilst the Small Industrials index has fallen 7.3% over the same period.

Notably a number of high PE growth companies have delivered negative outlook reports. These included Aconex (ACX), GBST (GBT), Sirtex Medical (SRX), Virtus Health (VRT), Servcorp (SRV) and OFX Group (OFX) all of which have endured falls of between 20 and 60%. Thankfully the C3G Fund has not been invested in any of the companies that downgraded.


The positive Fund result in the month can be attributed to the following:

Bubs (BUB): This early-stage infant milk and food producer listed in early January. Within its first few days of trading the share price appreciated strongly (up 300% at one point) on high volume to the point where it was trading well above our valuation. We opportunistically exited the position over the course of the month.

Axsesstoday (AXL): This recently listed equipment finance provider is still in the early stages of its growth phase. We see earnings upside through increased access to capital in its core business and expansion into new segments. It closed January up 34% on its IPO price.

Money3 (MNY): The combination of improved management, strategic repositioning and growth capital has reignited our interest in MNY. Over the next 3 years we forecast double-digit compound profit growth on improved capital returns with a high proportion of reinvested earnings.

We had no major negative contributions for the month but our two poorest performers were:

Abundant Produce (ABT): Although only a small position in our Fund, ABT’s share price fell 17% in January on small trading volumes. We continue to believe this business will begin to commercialise its expanding suite of intellectual property in the breeding of food crops. We marginally increased our investment in January on the price weakness.

Skydive the Beach (SKB): The share price drop of 5% over the month was not driven by any company-specific news and we retain our positive long-term view on this growing adventure tourism business. We expect SKB’s 1H17 result to be at least in-line or ahead of expectations.

FUND PERFORMANCE (after all fees and including distributions)


February is all about reporting season. The vast majority of smaller companies report their earnings in the second half of the month and we look forward to running the ruler over the numbers and meeting with management of all our investee companies.

We would like to think the results season will reiterate the strong underlying performance of our investee companies and contribute to further price appreciation.

Of course we have little control over market sentiment which has certainly not favoured the small cap sector of late. However history has proven that this sentiment can suddenly reverse, sometimes in the matter of a week.

At Cyan, we will also meet with management teams of potential new investments during reporting season. We are seeing a number of emerging businesses well positioned to continue their strong performances and hope the positive start to the new year will continue.

The vast majority of our larger positions contain our preferred characteristics of high return on equity, strong cash conversion and below average dividend payout ratios, which positions them well to deliver ongoing earnings growth and share price appreciation.

We thank all our investors for your support and look forward to keeping you all updated with the Fund’s progress.

As always we are contactable in person if investors wish to discuss any aspect of their investment in the Cyan C3G Fund.

Full Report: Cyan Monthly Jan 2017

Dean Fergie and Graeme Carson