14 Oct 2024
| Click here for a PDF of this newsletter Equity markets showed strength through September as the macro environment was conducive to the sector with the first cycle of interest rate cuts moving through the US and parts of Europe. Geopolitical risks remain, but economically, inflation has generally eased, and central banks are now positioning to balance monetary policy with respective growth outlooks. The Cyan C3G Fund delivered a positive return of 2.2% for the month. The S&P/ASX All Ords Accumulation Index gained 3.4% and the Dow Jones gained 1.8%, representing continued strong performance at the larger end of the market. The RBA kept cash rates unchanged at 4.35% in its September meeting explaining that: “Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance. But inflation is still some way above the midpoint of the 2–3 per cent target range. In underlying terms, as represented by the trimmed mean, inflation was 3.9 per cent over the year to the June quarter.” It is generally agreed that the Australian economic response is lagging many developed offshore economies, but as discussed in previous monthly reports, and as evidenced by the chart below, the spread between 10yr bonds and the RBA cash rate is showing long bonds yielding less than cash. This implies expectations are that short-term rates are close to peaking.
As such, we are seeing increased confidence with respect to growth companies, which generally outperform in falling interest rate environments, and improving support for the smaller end of the domestic market. Liquidity remains constrained in the secondary market in small and micro caps, but it’s showing definite signs of improvement, and an increase in mergers and acquisitions activity provides anecdotal evidence that investors and industry participants are looking to opportunistically capitalise on the clear value that exists. Click here for a PDF of this newsletter Month in Review The Fund enjoyed a positive month with price appreciation across most of the portfolio. The biggest contributor to the Fund’s performance in the month was from Raiz Invest (RZI +15%). The app-based consumer savings and investment company has over 300t active clients in Australia and $1.5bn in funds under management. More recently the company has closed its loss-making Malaysian and Indonesian operations and is expected to trade profitably in FY25. The September price appreciation was likely spurred by some material recent events. Raiz conducted a $2m strategic capital raise to State Street Global Advisors at a small premium to the prevailing share price. Additionally, one of Raiz’s most comparable competitors, Spaceship (with a similar FUM to RZI but closer to 200t customers), was acquired in a deal worth a reported $80m, almost double the current market cap of Raiz (which also holds $14m in cash).
The other significant contributor to Fund performance was smart traffic camera company Acusensus (ACE +20%), following on from a similar rise in August. As we noted last month: “After missing out on some large tenders during the past year we feel the company is being somewhat coy in respect to its near-term opportunities and we anticipate there could be some upside surprise, especially in light of how topical the danger and policing of distracted driving remains.” It appears the company is regaining interest as both the safety aspect of distracted driving and the AI-angle of smart traffic cameras resonates with investors.
Vinyl Group (VNL +10%) has been busy of late with three acquisitions announced in the past three weeks, adding more than $7m in annual revenue. Importantly, these newly acquired companies (Mediaweek Australia, Serenade and Funkified Events) integrate well with Vinyl’s existing media, retail and events businesses with additional cost savings and synergies expected to meaningfully contribute to growing margins and profitability in FY25. Reflecting the optimism in the smaller cap space were the performances of Swift Networks (SW1), Birddog (BDT) and Readcloud (RCL) which all enjoyed double-digit gains in the absence of any material news. The most significant underperformer was medical software company Alcidion (ALC -14%). The most recent news the company reported were two contract wins: their Preferred Supplier to North Cumbria UK, a 10 year, A$30-40m deal for the company; and a 5 year, A$4m deal with Hume Rural Health in Victoria. We suspect the seasonally weak Q1 cashflow report, expected at the end of October, may be weighing on investor sentiment. Although we predict recent cost-cutting to have a materially positive impact on the cost base and the reported numbers.
Media For all articles, videos and commentary featuring Cyan Investment Management please head to the Cyan Investment Management Linkedin page. The market is now approaching quarterly cashflow statements and AGM season, which in many cases will provide clarity on performance and outlook and we expect several of the companies in our portfolio to provide positive earnings guidance for the year ahead. The C3G Fund remains well diversified with a spread of growth positions across various industries.
As always, we are attentive to all risks and opportunities and 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 |
