Cyan Newsletter – 31 May 2024

11 Jun 2024

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Markets traced an arc through May as early optimism on the inflationary outlook was quelled by stronger mid-month wages data (up 4.1% yoy) which drove bonds higher and equity markets lower.

Despite a strong start to the month – at one stage the All Ords had gained ~3% and the Cyan C3G Fund more than 4% – May closed close to flat. The S&P/ASX All Ords Accumulation Index gaining a modest 0.9% and the S&P/ASX Small Industrials retreating 0.9%. The Cyan C3G Fund pulled back 1.4%.

The RBA determined to keep interest rates on hold at 4.35%, the last rise being back in November 2023. Of note is the spread between 10yr bonds and the RBA cash rate which is showing, for one of the few times in the past decade, long bonds yielding less than cash. This implies that expectations are short-term rates are close to peaking.

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Month in Review

Underlying the flattish performance in the month, the Fund experienced significant swings in both directions from its underlying investments.

The strong positives came from educational service provider Readcloud (RCL +18%) and medical software company Beamtree (BMT +28%).

Readcloud provides digital learning solutions to secondary schools and the VET sector and has shown meaningful signs of a turnaround since installing new management last year. Due to the school selling season, the company has a September financial year end and thus recently reported its 1H24 earnings to 31 March 2024.  This showed a huge improvement on prior years with revenue up 13% to $8m resulting in an EBITDA of $1m, a significant result for a company with a present market capitalisation of just $8m, no debt and $3m in cash.

Beamtree is a fast-growing global healthcare technology provider with its software (some of which incorporates AI) deployed in more than 20 countries. The company enjoyed renewed investor interest from its outstanding underlying results. Company Chairperson Emma Gray added to her investment in May, acquiring 20m shares to take her personal ownership to 10.7% of BMT. The company has guided to $60m in annual recurring revenue by FY25, representing compound annual revenue growth of 38% from the FY23 base.

One company we expected to have traded higher than it did was gaming developer Playside (PLY+3%). The company announced during May the development of a blockbuster game based on the Game of Thrones series, franchised from Warner Brothers and shortly thereafter upgraded their FY24 guidance with an almost 40% increase in forecast EBITDA. This is now the 4th time PLY has upgraded FY24 guidance.

There is no doubt this Australian company is becoming a serious player in the global gaming industry. We expect continued investor interest both from Australia and overseas given its marquee brands and global client base which includes Meta, Activision Blizzard and Netflix.

We saw camera company Birddog (BDT -32.5%) hand back much of its recent gains although this did not, overall, effect the Fund. The pull-back was no doubt impacted by one of the original founders, who no longer works in the business, selling a material stake at a significant discount to the market. With Birddog’s new camera models achieving outstanding early reviews and orders, FY25 is shaping up to be a turnaround year for the company.

We have noted this previously, but Birddog’s market capitalisation of $11m is almost half of its $21m cash balance.

Advanced manufacturing business Quickstep (QHL -28%) surprised with its price fall during the month. We don’t know if this is a result of tax-loss selling or negative sentiment towards defence manufacturers, but it seems to fly in the face of recent contract wins, particularly in the increasingly popular drone sector (Quickstep announces new $1.35m Carbonix Drone Contract).

We’re not so arrogant as to think we always know better than the market so we remain in close contact with the company and staying alert to any potential negative fundamental news. We do not see short term earnings as a catalyst, but as the company delivers continued success in the drone sector, complemented by traction in its significant push into the US defence sector, the market will realise that a business with multi=layered growth avenues is too cheap with a market cap of just $11m.

Other rises and falls in the month included Alcidion (ALC +7.4%), Swift Networks (SW1 +5%), Big River (BRI -16%) and Silk Logistics (SLH -11%).


For all articles, videos and commentary featuring Cyan Investment Management please head to the Cyan Investment Management Linkedin page.

As mentioned at the beginning of this report, we saw some real market enthusiasm early in May which gave us some optimism for the near-term performance of the smaller end of market. This is likely reflected in leading investment banks pressing the ‘Go’ button on the highly anticipated, (and highly priced) IPO of Guzman y Gomez Limited which is seeking to raise $242m at a valuation of $2.2bn. Although this looks steep to us considering the modest profitability ($3.4m forecast in FY24), the stock may be well sought given the market has been starved of any sizeable IPO’s for a long period of time.

In respect to the Cyan C3G Fund, we see several of our investee companies punching well above their weight with respect to the financial performances they are achieving and the limited stock market attention they are presently attracting. We believe it is only a matter of time before the gap is closed (with upward share price trajectory) and the upcoming cashflow numbers in late July and results season in August are likely to be strong catalysts for significant re-ratings.

As always, we are attentive to all risks and opportunities and welcome contact from our investors at any time.

Dean Fergie and Graeme Carson