Cyan Newsletter – 31 March 2024

10 Apr 2024


The Australian stock market pushed higher in March with the ASX/S&P All Ords Accumulation Index rising 3.1%. The RBA held rates steady at 4.35% and ceased referencing further rate rises. However, the bullishness in the markets was in direct contrast to slumping consumer confidence and continued declines in the iron ore price which has been under pressure for all of 2024.

The Cyan C3G Fund experienced rises throughout the portfolio (but was negatively impacted by one material fall) delivering an overall return of +1.6% in the month.

Iron Ore Price (USD)

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Month in Review

The Fund was most impacted by the performance of traffic camera operator Acusensus (ACE -27%) early in the month after it failed to win a previously announced proposed contract in the US. ACE was awarded the road works speed contract by the Washington Department of Transport but, after the scope of the contract was expanded, without the budget being approved by treasury, the tender was pulled and not awarded to any vendor. Sadly, this was out of the control of ACE and hence we feel the share price has been dealt with harshly. However, at its present valuation (at 60c, mktcap $75m) the company is exceptionally attractive. ACE is expected to generate $50m of revenue in FY24 at EBITDA margins of 8-10% and holds $21m in cash. The Fund bought into ACE late last year at ~75c so has been more impacted by giving back recent unrealised gains as opposed to capital losses.

ASX:ACE share price

The Fund was also impacted modestly by small slides in companies such as Schrole (SCL -10%) and Big River (BRI -4%) both of which have rebounded this month.

We did experience several positive movements across the Fund indicating renewed interest in the small-microcap sector with four of our holdings rising more than 10% and another six that gained 5-10%.

One of the more significant gains came from Zoom2U (Z2U +13%) which provides routing, driver management and invoicing software solutions to the transport industry. Z2U attracted a new strategic shareholder, the founder of integrated logistics group FHM Group, who purchased almost 10% of the company. We expect this strategic relationship to be materially positive for Z2U in the coming year.

We feel the performance of advanced manufacturing company Quickstep (QHL +7.5%) was disappointing given the announcement of a $1.25m contract (to be fulfilled in the next three months) with drone manufacturer Carbonix. QHL has a market capitalisation of just $20m so a small but specialized and profitable contract like this is significant to the business. In addition to the expansion of the company’s domestic MRO (Maintenance, Repair, Overhaul) services it conducts for Jetstar, QHL is expanding into the US by setting up a defence manufacturing facility in Kansas, mirroring the Australian business. This is likely to be partially funded by existing defence contract customers and US state or federal government and could be a significant step-change for the company.

The Carbonix Volati drone whose aerostructure is being manufactured by Quickstep.

The strongest performer in the month was diversified music business Vinyl (VNL +33%). The company is backed by both Wisetech (WTC) founder Richard White and music licensing company Songtradr who both own in excess of 10% of the company. VNL has recently purchased Brag Media, publisher of titles such as Rolling Stone and Billboard. Combined with its existing music data business (Jaxsta), social networking company (Vampr) and retail site ( the company expects to generate almost $10m in revenues in CY24.

With global music sales recording a record US$28 in 2024, VNL is expected to be a growing force in the global music marketplace.

Global music sales (USD). Source:


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There are several signs pointing to increased optimism in the small-cap space:

  • Stabilising inflation and a likely peak in the interest rate cycle;
  • Strong performances at the big end of the market stretching the valuation gap to the smaller end;
  • Implementation and positive outcomes across many small-caps from prudent financial measures including cost-cutting and debt reduction;
  • Ongoing M&A activity in names such as Qoria (QOR), MMA Offshore (MRM) and Austal (ASB) in the past month;
  • Improvements in liquidity and interest levels at the smaller end;
  • New mandates being awarded to smaller cap managers as asset allocations are being directed to smaller caps stocks.

Given the historically high valuation gap between small and large cap stocks , Whilst the secondary market in respect to placements has been steadily improving, we are yet to see any real action developing in the IPO market.

Over April, the most important financial metrics will be the 4C cash flow statements released at the end of the month. For companies in the education space like Schrole (SCL) and Readcloud (RCL) this period equates to the peak selling season so some strong results can be expected. Other companies that have strung a number of positive cash-flow results together, like Playside Studio (PLY), are now not required to release quarterly results.

Overall recent company results, stock performances, and improvements in liquidity have given us an ongoing sense of optimism for 2024.

Dean Fergie and Graeme Carson


Cyan Investment Management