Cyan Newsletter – 30 April 2017

15 May 2017

The Cyan C3G Fund posted a 1.9% gain in April, delivering our investors a return of 3.2% over the last quarter.

The small cap sector has presented its challenges over the last 6 months, and we have been particularly conscious of balancing the relationship between risk and return. We have been pleased to have delivered a positive return in each month since the beginning of 2017, resulting in growth of 5.2% over the 4 months to date this calendar year.

Full report available: here

April Review

The Cyan C3G Fund benefitted from price strength in a few of our key long-term holdings through April:

Afterpay (AFY) and Touchcorp (TCH): The proposed merger of these two fintech businesses announced in February looks like it will be completed by the end of June. Initial market reaction was mixed, but it now appears to be better understood with the benefits becoming apparent. The outlook for Afterpay still looks very positive as the growth in its merchants and customers continues at an incredible rate with recent additions including Myer, Officeworks, Big-W, Dotti and Peter Alexander. We have been investors in AFY since its listing in mid-2016 and took a position in TCH when the proposed merger was announced. The AFY share price was up 9% in April, with TCH up 14%. Earlier in April we wrote an article for market communications website Livewire, examining the two businesses and the proposed merger. You can read the article here.

Skydive the Beach (SKB): We have been a long-term investor in this adventure tourism company and continue to like its growth profile. In early April SKB continued its diversification away from a pure skydiving business through the $15m acquisition of Reef Magic Cruises, one of Far North Queensland’s leading Great Barrier Reef outer-reef operators. As the acquisition was entirely debt-funded, it is forecast to be meaningfully earnings accretive. This is the fourth piece of SKB’s acquisition puzzle and, as the business grows its scale and improves its earnings diversity, it positions itself to become a leader in the adventure tourism leisure sector. SKB was up 8% in April.

Capitol Health (CAJ): Having owned this diagnostic imaging business in the past, but exiting a couple of years ago when some operating and legislative headwinds emerged, we recently reinvested. The balance sheet has been improved, the legislative headwinds are abating and the new management team appears to be generating improved returns from what is without doubt a group of strategically attractive assets. CAJ was up 12% in April.

Getswift (GSW): Albeit a smaller position in our Fund due to the early stage of its growth lifecycle, we view Getswift as a company positioning itself to deliver a commercialised software platform, potentially on a global scale. GSW offers an easy to use software logistics solution for “last mile delivery management” for business such as smaller logistics and fast-food operations. GSW charge a small fee for every transaction (delivery) that it helps its clients execute. It facilitated 500,000 transactions in 1Q17 across 61 countries and has publicly stated that it expects to grow that number by 30 times over the next 2 years. GSW’s share price was up 48% in April.

MSL Solutions (MPW): We invested in this IPO with the view that it will grow solidly over the next two to three years. The business provides technical platforms and software solutions to sport, leisure and hospitality industries around the globe. For example, it provides the point-of-sale and inventory management solutions for the MCG, Wembley Stadium and Old Trafford. It also facilitates the Australian Golf Link handicapping system. With the addition of new capital and the ability to use its listed status to drive acquisitions, we look forward to its growth path over the coming months and beyond.


We have gradually been deploying some of our high cash balance in recent weeks, but still remain at the conservative end of our investment risk profile. That said, we believe the market is beginning to show signs of a rotation back into smaller companies and hence the risk/opportunity balance is beginning to swing back in favour of the small-cap sector.

In terms of size, approximately half of our holdings are in companies with a market capitalisation between $200m and $750m.

The chart below illustrates the lifecycle stage of a business at which we like to invest, and we continue to diligently scour the market to find the right mix of growth, valuation and quality of management.


Dean Fergie & Graeme Carson
Cyan Investment Management
AFSL No. 453209