14 Dec 2017
The Cyan C3G Fund posted a 2.4% return in November. The Fund has now delivered 28.1% in calendar 2017, significantly exceeding both the S&P Small Industrials Accumulation Index’s return of 13.9% and the All Ordinaries Accumulation Index return of 10.2% over the same period.
Full report : Cyan Monthly Nov17
Experience Co (EXP) – renamed from Skydive the Beach (SKB) – performed well with the company flagging its acquisition of two more Cairns based adventure tourism companies. The acquisitions have been funded by a rights issue to existing holders and hence the Cyan C3G Fund was able to benefit further from an increase in its shareholding. The company continues to grow its presence in the adventure travel industry (particular in the industry epicentres of Cairns and Queenstown) and its price performance is being driven by the ongoing acquisition program and the operating benefits of scale and a broadened product offering. EXP rose 19% in November.
Moelis (MOE) is an emerging investment bank (with noticeable similarities to Macquarie Bank in its early days) that exhibits a number of our preferred business models including compounding annuity income generation. It is also enjoying the benefit of access to capital following a successful ASX listing 8 months ago. MOE rose 10% in November.
Spirit Telecom (ST1) – The Fund initiated a small position in this emerging telco a few months ago and has slowly increased the investment as management has proven its ability to deliver on the growth strategy. Although still not one of our bigger holdings we see a bright future and it is beginning to contribute some positive returns after a share price rise of 30% in November.
After strong share price performances in recent months, 4 of our larger positions retraced slightly in November. These were Bluesky Alternatives (BLA) down 9%, Kelly Partners (KPG) down 6%, PSC Insurance (PSI) down 4% and Axsesstoday (AXL) down 2%. None of these were driven by company specific news and we view it as short-term profit taking and remain very optimistic about the medium term outlook of each of the businesses.
The small cap market remains relatively buoyant and we are confident about the outlook for the companies in which we are invested.
Some of our larger core portfolio holdings that we expect to generate meaningful returns into 2018 include:
- Axsesstoday (AXL) – With a market cap of just under $90m and potential positive price catalysts from a strong operating result and an upcoming securitization program, AXL remains one of our highest conviction positions.
- Kelly Partners (KPG) – Again, with a relatively small market cap (~$70m) and clear paths to further growth, both organically and by acquisition in the coming months we see strong share price upside potential.
- Experience Co (EXP) – We expect more of the same, positive results driven by more acquisitions and increasing scale to be initiated by a proven management team.
- Motorcycle Holdings (MTO) – Some earnings variability will be overshadowed by the inclusion of recent acquisitions with more to come as it continues to consolidate a fragmented industry. MTO is still in the early stages of its growth plans.
- PSC Insurance (PSI) – Having recently raised a material amount of investment capital ($55m), we expect PSI to put this to good use through an ongoing acquisition program complemented by good industry tailwinds.
- Bluesky Alternatives (BLA) – The key medium term growth drivers remain very much intact with continued growth in Funds Under Management generating management and performance fees and significant benefits of scale as the business expands.
Outside those mentioned above, the Fund remains well diversified with 22 total individual holdings and no position accounting for more than 8% of the total Fund. The weighted average market cap is approximately $300m and all have met or exceeded recent expectations for business performance. In addition, they all contain what we believe to be positive business catalysts over the short to medium term.
We hope to complement these with some new positions taken recently in both the IPO and secondary markets. We also continue to hold a significant cash balance which we will look to carefully deploy as opportunities arise.