This year has been a rough ride for most ASX shares, but small-cap companies have suffered more than their larger cousins.
The Cyan C3G Fund, which specialises in small-cap stocks, has felt the pain as much as any retail investor.
Portfolio managers Dean Fergie and Graeme Carson told clients in a memo that, as participants in the fund themselves, their personal wealth has also taken a massive haircut.
"There's no other way to express it. We had a terrible FY22, with the fund falling 38%," read the memo.
"Even against the S&P/ASX Small Ordinaries Industrials (ASX: XSI), which lost 24%, it was a poor result."
While they admitted to some mistakes — mainly not taking some profits last year before the crash — the fund has a long-term focus.
"Nobody rings a bell at the bottom, but from what we're seeing and hearing, our company outlooks are far better than the market prices are currently implying," read the Cyan memo.
"As such, we remain particularly confident that the prices of our holdings will improve significantly in the near-term."
With this philosophy in mind, there are a couple of ASX shares in the Cyan portfolio that have been particularly bruised. But Fergie and Carson are holding on for a turnaround.
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Strong balance sheet and recurring revenues
Healthcare software provider Alcidion Group Ltd (ASX: ALC) saw its share price tumble nearly 70% over the 2022 financial year.
Fergie and Carson admitted COVID-19's impact on its United Kingdom growth and an "ill-timed" stock issue late last year just before markets plunged did not help.
"However, a raft of recent contract wins have shown significant catch-up by the company," their memo read.
"Indeed, total revenue for FY22 is likely to come in at around $34 million — up 40% on the prior year — a positive result and in stark contrast to recent stock price action."
Alcidion's market capitalisation is now down to just $146 million, so analyst coverage is scarce.
However, the experts at Canaccord Genuity Corp agree with Cyan. They rate the stock as a strong buy, according to CMC Markets.
The Cyan portfolio managers said that all the original tailwinds are still there for the company to make a roaring comeback.
"With Alcidion having a strong balance sheet, significant recurring revenues derived from government and private domestic and international hospitals and health care providers, there are numerous reasons to expect this stock could be a strong performer again in FY23."
Sell-off of this takeover target is 'overdone'
The share price for micro-investment platform Raiz Invest Ltd (ASX: RZI) plunged 60% over the 2022 financial year.
Fergie and Carson said the stock "hurt us materially".
"Frustratingly, the company's metrics have actually improved over the year," read their memo.
"FUM [funds under management] is up from $905 million to $940 million and customer numbers globally are up 35% — albeit in Australia they have only risen 3%."
While they admitted there is transitory concern about a slowdown in domestic growth, they reckon the market has overreacted.
"We seriously consider that the pull-back in the price is overdone, particularly in light of the $10 million investment Seven West Media Ltd (ASX: SWM) made in the company late last year."
The Cyan team also thinks Raiz's considerable customer base and reduced valuation could make it attractive as a takeover target.
"With almost 300,000 active and engaged financial customers in Australia, Raiz is generating strong recurring revenues and is likely to garner the interest of a myriad of local financial institutions."
