Cyan Newsletter – 31 July 2017

14 Aug 2017

The Cyan C3G Fund posted a strong result in July, returning +2.3% and delivering a milestone three year cumulative return of 97% (or 25% p.a.). This exceeded our closest benchmark, the ASX Small Industrials Accumulation Index, by more than 70%. In addition, our returns have been achieved with lower volatility than any of the comparable ASX Indices.

Full report: Cyan Monthly July 17

Since inception, the Cyan C3G Fund has predominately been invested in a diversified portfolio of small to mid-sized growth-orientated ASX listed companies. We very much focus on delivering capital growth to our investors but, at the same time, manage downside risk and volatility with a conservative approach to portfolio construction. The Cyan C3G Fund has, on average, held a cash balance exceeding 30%. In the three years to date, the Cyan C3G Fund has enjoyed 26 up months and 10 down months.

July Review

The monthly return of 2.3% was delivered in a volatile market with the Small Industrials retracing 0.2% by month’s end. We had a broad group of contributors to the positive return, but some of the standouts included:

Afterpay Touch (APT) https://www.afterpay.com.au/ – The completion of the Afterpay Touchcorp merger at the end of June removed some uncertainty and investors appeared to refocus on the stellar growth metrics this fintech is delivering, resulting in share price appreciation of 14% in July.

Axsesstoday (AXL) www.axsesstoday.com.au/ – This financier released an announcement mid-month guiding their FY17 earnings ahead of prospectus forecasts and, for the first time, providing profit projections for FY18. Management appears confident the growth will continue and the market agreed, pushing the price up 14%.

Adairs (ADH) https://www.adairs.com.au/ – The Australian retail sector has been making headlines of late as share prices have come under pressure due to the proposed arrival of Amazon. We have limited exposure to the sector but held the view the view that some of these companies had been sold down too aggressively and took a position in Adairs. We were rewarded with a 37% share price rise when the company released a positive trading update. Notably, Adairs is one of the more than 5,000 Australian retailers incorporating Afterpay’s payment system.

Family Zone (FZO) https://www.familyzone.com/au/ – This small tech company focuses on cyber security for children through the delivery of a parental control platform, predominantly on mobile devices. It’s getting good traction from both consumers and schools and looks to be developing a strong growth trajectory. It is still in the early phase of its growth lifecycle, hence we have taken a relatively small position in the Fund, but we think the metrics look good and have been impressed by the management team during a number of recent meetings. FZO share price rose 24% in July.

Through the month the Fund increased its positions in a number of core holdings and initiated some new investments, the most material being Motorcycle Holdings (MTO). We see MTO as well positioned to consolidate the highly fragmented motorbike sales industry in Australia. The company is well funded for growth, is well managed by an experienced team and is reinvesting a good proportion of its earnings at high rates of return.

As is always the case, there were a handful of positions that fell slightly throughout the month, including MSL Solutions (MPW) and Skydive the Beach (SKB), but not significantly enough to materially impact the overall return of the Fund.

 

Press

Cyan was featured in one of Livewire’s Buy Hold Sell pieces, “Can scandals create buying opportunities?”.   https://www.livewiremarkets.com/wires/can-scandals-create-buying-opportunities

Outlook

We continue to have compelling expectations for the companies in which we have invested your funds. As a whole we believe these businesses will grow materially over the next year, with the first catalyst being the reporting of solid earnings results in the upcoming reporting season.

The Fund is well diversified with 24 individual holdings and no position accounting for more than 6.5% of the total Fund. The stocks lie across 6 broad industry sectors including: consumer staples and discretionary; industrials; health care; technology and financials. The weighted average market cap is approximately $250m.

We continue with our heavy schedule of company meetings and research analysis to identify new opportunities and feel that the smaller companies sector of the overall market is showing definite signs of improvement.

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.

Dean Fergie and Graeme Carson
Cyan Investment Management

AFSL No. 453209