14 Jun 2018
The C3G Fund delivered a return of +3.4% for the month of May. In almost exact contrast to the previous month, 20 of our 22 positions recorded positive performance to drive a strong recovery in the portfolio overall.
The broader market experienced a volatile month in the shadows of the domestic Royal Commission, US/China trade disputes, oil price volatility and speculation around the US/North Korea summit. By month’s end the All Ords Accumulation Index had returned +1.4%.
May’s performance can be largely attributed to price recovery in almost all of our investment positions from weakness the previous month. This pleasing result confirms our confidence that the underlying companies are healthy, but, like all publicly listed investments, are subject to the short-term vagaries of share market sentiment and trading activity that can occasionally be manifested in indiscriminate price movements.
The key positive contributors in May included:
Axsess Today (AXL): One of our highest conviction holdings rewarded us with a 10% price gain after it presented its story at a number of industry events. Nothing has changed from our perspective, but the market appeared to acknowledge the progress the company has made, both through growth in its core equipment leasing business and the potential upside form its recent capital efficiency initiatives such as its debt book securitisation program that will result in a material decline in its long-term funding costs.
Acrow Formwork (ACF): This emerging construction and civil services business is also beginning to lift its profile in the market as it positions itself to capitalise on government led infrastructure spending on Australia’s east coast. We expect the company to deliver short term earnings growth and secure a new pipeline of contracts in its niche industry. The ACF share price appreciated 16% in May.
Experience Co (EXP): Our long term investors will be familiar with our belief in this adventure travel business. It continues to grow its scale and diversify its earnings base, albeit while facing short-term challenges in weather conditions. EXP is still relatively early in its growth lifecycle phase and we expect further growth through acquisition over the next 2 years, complimented by synergies and efficiencies from cross-selling opportunities. EXP rose 11% over the month.
Readcloud (RCL): We took a position in this unique company at its IPO in February this year, and have increased our investment since. It has more than doubled in price but we believe its true underlying value is only beginning to be realised. RCL is positioning to lead the drive in digitisation of the education sector for Australian secondary schools. The sector has been dominated by the book publishers’ delivery of printed material, but RCL now works with those publishers to deliver interactive digital content both directly to schools and through its channel partners. It has already secured more than 70 schools with over 50,000 students on the system, with a strong growth pipeline to materialise in the next 12 months.
Roots (ROO): A technology business focused on improving quality and yield of plant crops in the agriculture industry, particular in challenging weather conditions. It has the potential to deploy its suite of products and process in numerous geographies around the world and has already gained traction with some significant industry partners. The share price rose 27% in May.
The Fund has taken a handful of new investment positions in the past month, deploying a portion of our defensive cash balance. We envisage further investment in the coming month as more new opportunities have now been identified. That said, we have also reduced a couple of exposures as they are approaching our valuation target.
Our core investment philosophy and portfolio managed remains consistent based on the following key criteria:
1. Invest in companies, not markets.
2. Invest in quality.
3. Avoid high risk and volatile sectors.
4. Invest in companies that earn through the cycle.
5. Invest in companies with specific growth drivers.
6. Deploy a portion of our high cash balance to build opportunistic positions as we identify them.
We thank our investors for your support and as always, can be contacted at any time.
Dean Fergie and Graeme Carson
Cyan Investment Management
AFSL No. 453209