Cyan Newsletter – 30 September 2018

16 Oct 2018

Disappointingly, the C3G Fund retraced most of ground it had made in the past couple of months, returning -2.2% for September and taking the gain for the first quarter of FY19 to a modest +0.7% (after all fees).

September Review

Across our total shareholdings in September, we enjoyed just three stocks that gained ground (Acrow, Noni B and newly added Spicers Paper) with the remaining 20 odd positions falling back between 1% and 13%.

This was, in part, due to the slightly bearish market disposition mirrored by the 1.1% fall in the All Ords. Of course, at the time of writing, that negative trend has accelerated further in October.

In terms of the more significant moves over the month:

Experience Co (EXP) fell 11% in September as an institutional seller weighed down the market by selling their remaining stock. As our weighting in EXP has been markedly reduced this year – due to the growing size of the Fund (and a falling EXP share price) – we have started to pick up some additional stock in the company and expect that a positive update at the company’s AGM in late October should reverse the downward trend.

Other stocks enduring modest falls without any specific news included:

Calix -12%
Kelly Partners -8%
Moelis -9%
Pivotal Systems -12%
Spirit Telecom -5%
Read Cloud -5%

As mentioned we added a position in Spicers Paper (SRS). This paper distributor has been significantly recapitalised over the past couple of years and at 30 June 2018 had $45m net cash on its balance sheet plus a number of property assets. Additionally, on 26 September, SRS announced the sale of its Asian operations for SGD$15m (approx. AUD$15m). With a market capitalisation of less than $100m when we commenced buying and a clear expectation of a capital return in the near future, SRS should be a solid short-medium term investment. SRS rose 25% in September.


We understand our Fund investors don’t particularly enjoy reading our recent tales of investment gloom. Trust us, we certainly don’t enjoy writing them.

However the reality of stock investing is that positions don’t move up in a straight line indefinitely. Cyan C3G Fund investors have enjoyed periods where the Fund has performed consistently well (calendar 2017), unfortunately 2018 has been a year where forward momentum has been harder to achieve.

Even great multi-year investments will have periods of retracement and consolidation. One of the ASX’s best performers, CSL, despite rising more than 500% in the past 10 years, has suffered 15 monthly falls of more than 5% during that timeframe.

We will obviously get some investment decisions wrong, but even when we get things right, investors can expect periods more benign performance.

October has clearly been very challenging with the All Ords down over 6% to date and the Small Industrials down almost 8%. Of course recent volatility can see daily swings of more than 2%.

With the Cyan C3G Fund’s cash position, the Fund is presently down around 3.6%. Further, the corporate market is remarkably active and we have been involved in a number of transactions (both IPO’s and placements) that we expect to add meaningful value to the Fund in the coming months.

During periods of extreme volatility, is it incredibly difficult to know how to react in the short-term. For us, we aim to ignore market gyrations (as much as possible) and focus on the underlying fundamentals and growth paths of our investee companies. By coming back to basics, we remain confident in the future earnings capabilities of our investments.


Dean Fergie and Graeme Carson