Cyan Newsletter – 31 July 2023

18 Aug 2023

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After a very challenging investment period at the smaller end of the Australian market, July offered some real signs that confidence is finally beginning to emerge.

Several central banks globally have paused their interest rate hikes, prompted by the emergence of positive trends in inflation indicators. Further, with the conclusion of June’s tax-loss selling period, there has been a noticeable uptick in the confidence of small company investors, contributing to an atmosphere of growing optimism.

During July index returns included All Ords Accum Index +3.0% and the Small Ordinaries Accum Index +3.5%. The Cyan C3G Fund delivered a monthly return of +7.2%.

Month in Review

Liquidity in the market remains challenging but is certainly improving. It has felt like fundamental good news from companies has been ignored for an extended period, but now those that are delivering solid results are being rewarded accordingly. For that reason, the Fund enjoyed some strong performances in July, mostly in response to the release of company cashflow statements.

Positive contributors:

  • Raiz Invest +49% (Financial Services): The company continues to re-focus its efforts on its proven Australian micro-investing platform. RZI has reduced costs, and subsequently cash burn, and has announced various initiatives to drive top line growth. All these developments were taken favourably by the market, resulting in a strong share price bounce. We believe significant upside remains given the company’s recurring revenue, scalability and ongoing growth in FUM (+20% in FY23).

  • Playside (PLY) +46% (Game development): Playside proved it is more than a work-for-hire game developer with a solid rebound in its quarterly cashflow statement, with strong performances from both its original IP and work-for-hire divisions. It also announced a new game development contract with Meta and provided revenue guidance of ~$50m+ for FY24, which was ~20% higher than previous expectations of analysts.  It is worth remembering that this represents organic growth from $10m to a forecast $50m+ in 3 years, equating to a compound annual growth rate of 69%. We would also argue that the quality of revenue has improved, given PLY now partners with some of the best of breed industry leaders.
  • Alcidion (ALC) +32% (Healthcare Software): Alcidion rebounded well with a strong June quarter, from both a cashflow and revenue perspective. We expect this is the beginning of significant price momentum as the company executes on its strong pipeline of potential projects, particularly in the UK. We believe ALC will be a strong performer over the next 12 months as the Government led push to digitisation of the UK healthcare sector accelerates.


  • Quickstep (QHL) +22% (Advanced Manufacturing): This aerospace composites business is in the midst of a turnaround having faced severe headwinds due the impact of Covid on the industry. QHL provided a trading update through July, flagging a profitable June quarter and a strong outlook for FY24, with projected improvements across all divisions. It has secured $234m of new contracts in the past year. We are increasingly bullish on the outlook over the coming 12 to 24 months and believe material inherent value will be released.
  • Readcloud (RCL) +34% (Education): This provider of digital eLearning solutions to the Secondary Schools and the Vocational Education and training (VET) sectors released a solid quarterly cashflow statement, with 4th quarter growth of 34% being driven organically and by acquisition. The outlook for the business appears to be materially improving, led by an impressive new CEO and we have increased our investment through a recent capital raising.

Negative Contributors:

  • Mighty Craft (MCL) -33% (Alcoholic beverages): The only significant negative contributor was this boutique alcohol business, which frustratingly continued to underperform badly. We have not purchased shares in the business for the past two years and so the impact of the decline has been organically minimised (although we clearly would have been better off to have exited completely). We have been critical about business decisions, and even the communication of them, through a recent period of mismanagement. The company has a solid suite of assets, most notably in Australia’s fastest growing beer (Better Beer), but funding pressure and operating performance has resulted in the removal of the MD and the proposed sale of assets. We think the current price does not close to reflect the sum-of-the-parts value of the assets so have remained invested. We are looking for positive catalysts in the coming weeks, in the form of announced asset sales and subsequent debt reduction.


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We are heartened by the improvement in sentiment at the smaller end of the market and the improvement in the Fund’s performance. We also acknowledge the Fund has further to go to achieve its stated objectives that there may also be some market skittishness based on the macro environment conditions and their impact on corporate performance.

As we enter reporting season we believe those companies that have taken this challenging period to reduce costs to right-size their businesses and focus on cashflow and balance sheet management will be best placed for the year ahead. These are the types of business we have been focusing on and believe the portfolio is well positioned.

In our April monthly report we mentioned a few of our investments that we see as rich in catalysts. Some of these have begun to play out but we believe significant value is yet to be released. We wrote:

  • Raiz (RZI) – Further clarity around the structure and strategy for the previously problematic Asian operations should help to release value in the strong domestic business.
  • Mighty Craft (MCL) – the recently restructured Better Beer asset is currently undertaking a capital raise, which will result in a strong uplift in the valuation of the MCL holding and illustrate the value that sits in the overall Mighty Craft business.
  • Alcidion (ALC) – The timing delays on new contracts should be worked through as the UK NHS digitisation program develops.
  • Quickstep (QHL) – A favourable outcome around the future of the Aftermarket business with client commitments would be a material positive.

From a macro perspective the conversation is still focused on inflation and interest rates but has evolved from “how high” to “how long”. This is an important development and the first step towards the confidence required to release the obvious value that sits at the smaller end of the Australian market.

As always, we thank our investors for their ongoing support and are available for contact if required.

Dean Fergie and Graeme Carson


Cyan Investment Management

AFSL No. 453209

An investment in the Cyan C3G Fund can be made by clicking here