12 Mar 2025
February 2025
The Australian market experienced significant volatility through February influenced by several key factors:
- Trade tensions and tariffs: The U.S. administration announced new tariffs including 25% on imports from Mexico and Canada and 10% on Chinese goods. Concerns of a trade war developed after the retaliatory measures from those affected, resulting in uncertainty and negative investor sentiment.
- Domestic reporting season: Economic uncertainty and instability in consumer confidence has been a theme of recent months and was evident in earnings performances of some companies released through the February reporting season. The range of performances was broad, but on a net basis overall earnings were roughly as forecast, with beats, in-line and disappointments almost split evenly three ways. The utilities sector was the strongest performer, with the tech sector the biggest loser, albeit dominated by the underperformance of one of the largest companies in Wisetech (WTC -23%).
Consumer discretionary retail delivered mixed messages, Cettire (CTT -27%), Temple and Webster (+20%) and travel disappointed, Flight centre (FLT -10%), Helloworld (HLO -17%). In some cases forward looking growth has been tapered into the second half by analysts, but balance sheets generally remain in good shape and cost bases have been adjusted over the past 12 months.
- Interest rates: The RBA cut interest rates for the first time since November 2020. The 25-basis point cut came after 15 consecutive months where the cash rate sat at 4.35%. We welcome the move by the RBA as generally this is positive for growth companies, particularly after a long period of heightened inflation and underperformance from the small growth sector of the share market, however it also needs to be put in context around the uncertain economic outlook.
- Offshore markets: Volatility in offshore markets drove uncertainty domestically. At the time of writing the US indices were at 6-month lows, giving back all post US election gains and more (The NASDAQ down ~13.4% from its January 2025 highs).
In the US, the US S&P 500 Index fell 1.6% in January whilst the tech laden NASDAQ was more materially impacted delivering a 4.0% drop. Back home the S&P/ASX All Ords endured a 4.0% fall – it’s worst monthly outcome since September 2022 – whilst the Small Ordinaries Accumulation Index retraced 2.8%. The Cyan C3G Fund held up well through the extreme volatility, managing a small positive return of 0.4%.
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Month in Review
The most significant performance in the month came from hospital software provider Alcidion (ALC +30%) after announcing the terms of its previously announced contract with North Cumbria Hospital network in the UK. This major contract will amount to A$37.5m over 10 yrs with $8-9m to be recognized this financial year, leading ALC to achieve both an EBITDA and cash-flow positive result for FY25. In addition to this large contract, ALC announced its first contract in Wales for a total value of $5.5m. We feel the price action was well-deserved given the significance of the contracts they have been winning. Alcidion is well-funded with $7.7m in cash (at 31 December 2024) and a strong billing cycle this half will see this cash position significantly improved coming into 30 June 2025. All-in-all, there is a lot to be optimistic about with this company.
Music industry consolidator Vinyl Group (VNL +34%) gained further interest from investors in February as its growing suite of media acquisitions translates into strong revenue growth, totalling $7m in the December 2024 half. In the past year VNL has acquired Brag Media, Concrete Playground, Mediaweek, Funkified and Seranade which are likely to strongly complement its existing music data business Jaxsta, social networking company Vampr and retail site Vinyl.com.
The major drag on the Fund’s performance in the month came from micro-investing platform Raiz Invest (RZI -20%) after enjoying a strong climb in January of +35%. The Fund took the opportunity in the month to reduce its holding in the company (in hindsight not enough!) but it’s almost impossible to perfectly trade these volatile movements. There has been a noticeable increase in interest in the company with the 1H25 results showing positive momentum with revenue +14% to $11.6m, positive underlying EBITDA, a strong cash balance of $12m and steadily improving FUM, now at $1.7bn.
The other pullbacks in the month included Beamtree (BMT -14%) and debt collection business Credit Clear (CCR -14%). Credit Clear has been growing steadily with a number of new blue-chip insurance, utility and government clients driving improvements in revenue and margins.
Media
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Outlook
Volatility at the stock level is currently being driven by macroeconomic factors and geopolitical issues. We have now seen significant pullbacks in most developed economy share-markets, generally relating to sentiment than economic reality.
We believe that the domestic inflationary environment will continue to ease but the benefit of the recent (and perhaps ongoing) rate cut will take time to materialise. Growth in the second half of the 2025 fiscal year is still expected to be solid at the earnings level for many companies. Australians continue to spend despite the cost-of-living pressures, and financial challenges faced by certain demographic and socioeconomic cohorts should begin to ease as lower rates and lower inflation begin to impact.
We continue to strongly believe that the smaller end of the market offers compelling value, to be realised in coming months and quarters.
Outside of our monthly reports, to keep up to date intra-month with stock news, please keep an eye on our Linkedin profiles.
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
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