12 Feb 2025
| Click here for a PDF of this newsletter January 2025 There was a flurry of activity during January, further reason to never be too far away from the screens over the Australian summer. Geopolitical events included talks of new major US tariffs on China, Canada, and Mexico which impacted some of the local retailers and manufacturers. Major swings in tech occurred on the back of the release of China’s Deepseek AI platform which sent marquee chip manufacturer Nvdia (NASDAQ:NVDA) down 10% in January. These concerns reverberated onto the ASX’s memory stocks such as 4DS Memory (4DS -34%) and Weebit Nano (WBT -37%). In our limited use of the AI mainstream platforms, it certainly appears that ChatGPT, Gemini and Microsoft’s Copilot are currently streets ahead of Deepseek. In the US, the US S&P 500 Index rose 2.7% in January whilst the tech laden NASDAQ managed a rise of just 0.3%. Back home, and egged on by some promising CPI data, the S&P/ASX All Ords had a solid rise of 4.4%, whilst the Small Industrials Accumulation Index and Emerging Companies Index rose 3.3% and 0.4% respectively. After a strong December quarter, the Cyan C3G Fund consolidated recent strong performance with a gain of 1.2%. Towards the end of the month, Australia received the welcome news that inflation had cooled to just 0.2% in the December quarter (2.4% yoy) improving odds that a welcome RBA rate cut may occur in the coming months. Infact, local data indicates a 92% expectation of a 25 basis point cut as early as February.
Despite the positive CPI data, consumer weakness and associated downgrades impacted stocks such as Premier Investments (PMV -26%), Myer (MYR -27%) and Kogan (KGN -24%). The best industrial performers included existing and new takeover targets such as Insignia Financial (IFl +25%) and Dropsuite (DSE +24%). Click here for a PDF of this newsletter Month in Review The Cyan C3G Fund experienced some significant swings at stock level in the month, belying the modest overall rise – the benefit of diversification. The major positive contributor in the month was consumer facing micro investing platform Raiz Invest (RZI +35%). We have been invested in Raiz for a several years (first buying in 2019) with the thesis that an engaged and growing customer base of more than 300,000 retail investors, a usable mobile IT platform and more than $1.5bn in FUM is a valuable and attractive asset. However, the timing of the recent rise, whilst welcome, appears almost arbitrary given the absence of positive company news released to date by the company. Again, we would note the present corporate activity in financial plays Selfwealth (SWF) and Insignia Financial (IFL) that are likely spurring some serious investor interest in Raiz.
Traffic camera operator Acusensus (ACE +11%) kicked higher as the market continued to digest recent large contract wins. Additionally, ACE’s Quarterly Update detailed steadily improving revenues and further contract wins not previously announced to the market. The company is yet to officially upgrade its FY25 guidance but given the news flow over the past month, current expectations are extremely conservative.
The Fund also welcomed positive news in reports from both Alcidion (ALC +15%) and ReadCloud (RCL +16%). Like Acusensus, Alcidion’s quarterly update detailed a total of $13.1m in new contract wins, a number well in excess of the two material contract wins ($4.5m and $3.7m) announced separately to the market over the period. Additionally, Alcidion has announced, this month, a $5-$7m contract in Wales further proving up their penetration into the UK health system. Digital curricula and VET training business ReadCloud has been performing increasingly strongly with impressive take-up in new schools of its VET-in-school products which are expected to grow by more than 25% this year. The cyclicality of school billing means the next two quarters see the company’s strongest cash flows with FY25 (ending September) forecast to be the company’s strongest year ever. On the negative side, the one of the larger drawdowns came from gaming developer Playside (PLY -46%) after announcing a pullback in its forecast FY25 revenues from ~$65m to ~$52m. Much of this predicted revenue had been “Work for Hire” which had been represented by the company as a fairly predictable and stable revenue stream, especially given the customer base including Activision Blizzard, 2K Games, Meta and Netflix. As such, the market dealt harshly with the stock, but arguably not unfairly, given the disconnect in perception vs reality. It’s not the first misstep the company has had, and the Fund has only been selling its position into prior stock strength over the past two years, having made our initial investment pre-IPO (at $0.16) in late 2020. Playside is now an interesting case of how much value is attributed to market confidence and perception. Playside listed at $0.20 with forecast revenues of around $10m FY21. Despite the 5x growth in revenue to FY25, the stock is now trading at almost the same price as at IPO. This does suggest some attractive inherent value but it will likely take some time before the market becomes re-engaged with management and the stock.
The other major disappointment was camera manufacturer Birddog (BDT -38%) which announced both sales ($3.1m) and cashflow below expectations. The company is not the only one in the industry struggling, with both Audinate (AD8) and Atomos (AMS) posting disappointing sales with the impact of the US election and impending tariffs. Much of the investment proposition of Birddog has been its strong balance sheet comprising $9.7m in net cash, now significantly more than its present market capitalisation of just $6.1m.
Media For all articles, videos and commentary featuring Cyan Investment Management please head to the Cyan Investment Management Linkedin page. During January Cyan featured on nabtrade’s Your Wealth podcast where we shared our thoughts with including:
Outlook At stock level it has obviously been a bit of a wild start to calendar 2025, however the underlying momentum has overwhelmingly turned positive for small caps during the past 3-6 months. We expect the following factors will continue to drive the market positively:
Outside of our monthly reports, to keep up to date intra-month with stock news, please keep an eye on our Linkedin profiles. We thank our investors for their support and believe recent results are the beginnings of a sustained re-rating in the micro-small cap sector. As always, we are attuned to market risks and opportunities, and we welcome contact from our investors at any time.
Dean Fergie and Graeme Carson
Cyan Investment Management AFSL No. 453209 An investment in the Cyan C3G Fund can be made by clicking here |
