Beagle’s annual results for the year ended March 2022 have been finalised, and it’s my pleasure to once again share them with you. The audit has not been 100% completed yet, so there might still be minor changes – unlikely, but possible.
Beagle is an investment entity managed by RECM, as appointed by the directors of Beagle. It has been set up specifically to act as an empowerment investor. Its main shareholder is the RECM Foundation which provides funding for education initiatives in some of Cape Town’s poorest communities. The trustees of the Foundation determine the beneficiaries, some of who can be nominated by staff members. The trustees of the Foundation are also all independent of RECM and are all black. Black shareholding of Beagle currently stands at 51%.
As a spin-off, Beagle also provides the staff of RECM, the staff of its “business family” as well as other friends with an additional investment opportunity that is differentiated from our local and global unit trusts managed by our associate Counterpoint, our hedge fund managed by RECM, or our listed investment companies RAC and Astoria.
You can read more about Beagle here and the RECM Foundation here.
2022 annual results
In order to calculate the year-end net asset value, we mark Beagle’s listed assets to market at prevailing market prices as of our year-end, being 31 March. The unlisted assets are valued internally, on a consistently conservative basis, twice a year. At year-end, the net asset value (“NAV”) per share of Beagle had increased substantially – by 45,3%, from R2 443 per share at the end of March 2021 to R3 550 per share. Over the same period, the All-Share Total Return Index increased by 18,6%
Since its inception, Beagle has compounded its NAV per share at a rate of 26,8% p.a. compared to the 11,8% delivered by the JSE All Share Index (with dividends reinvested). Despite a poor run from 2015 to 2020, a passive investment in the JSE has managed to deliver returns well in excess of inflation, growing investors’ wealth in real terms. Beagle has certain advantages, which have allowed it to do even better.
Those advantages are:
- It is a privately owned business, not subject to the ebbs and flows of public opinion.
- It has permanent capital allowing it to invest in illiquid situations, at times when they are favourably priced.
The table below sets out the progression of our NAV per share since inception, relative to the JSE All Share Index.
Historic returns
This table sets out the progression of our NAV per share since inception, relative to the JSE All Share Index:
| Year to: | Annual % change: Beagle NAV | Annual % change: JSE ALSI (incl. dividends) |
|---|---|---|
| March 2011 | 27,6% | 15,2% |
| March 2012 | 38,0% | 7,5% |
| March 2013 | 22,9% | 22,5% |
| March 2014 | 50,4% | 23,6% |
| March 2015 | 57,1% | 12,5% |
| March 2016 | 14,0% | 3,2% |
| March 2017 | 17,0% | 2,5% |
| March 2018 | 14,2% | 9,6% |
| March 2019 | 13,3% | 5,0% |
| March 2020 | -3,1% | -18,4% |
| March 2021 | 38,7% | 54.0% |
| March 2022 | 45,3% | 18,6% |
| CAGR | 26,8% | 11,8% |
Our portfolio
The past year has been an active one for Beagle.
Beagle was presented with an opportunity to increase its investment in The Reef Group (Reef), which was an existing, private investment. The amount required for the investment was R11,5mn which exceeded our cash holdings. To fund this shortfall, Beagle raised R4,2mn via the issue of 1 573 new shares at a price of R2 684 per share. In this process, we welcomed a few new shareholders on board, and we are grateful for the support of many of our existing shareholders. In addition to the money we raised via the rights issue, we borrowed R5mn.
Along with a strong uplift in the valuation of the business, our total investment in Reef now stands at R30,6mn. This represents 42% of our investment portfolio – and is now the single biggest investment. Reef has two subsidiaries, Reef Switchboards and Victoria Engineering – both of which serve the mining industry. Reef had a record year due to the uplift in commodity prices, while Victoria was flat last year, with the business negatively influenced by the strike at Sibanye. Overall, the group fared very well, resulting in the valuation uplift, on an unchanged multiple.
Due to Reef’s outstanding success during the year, Goldrush – a major player in the alternative gaming (Bingo, LPM’s, and Sports Betting) industry in South Africa – has now been toppled from its perch as our biggest investment. We bought a few more shares during the course of the year, and the valuation increased by 3% on a per-share basis. Goldrush has come through a tough time with flying colours. Covid-induced restrictions meant that it couldn’t trade for the full period, but it still managed to produce record EBITDA. More importantly, for the first time ever it has produced a significant operating profit. Subsequent to year-end, Goldrush declared a maiden R30mn dividend to its shareholders, of which Beagle will receive over R200 000 in July. We think Goldrush is set for a period of strong growth as economic activity normalizes post-Covid, and it capitalises on the growth projects that have been put in place over the past few years.
The market price of YeboYethu (YY) – the BEE shareholder of Vodacom – increased by 15%. We also added a small number of shares to our holding during the course of the year. YY paid dividends of over R400 000 to Beagle during the year.
The market price of Phuthuma Nathi (PN) – the BEE shareholder of MultiChoice South Africa – increased by 6% to R141 per share. PN declared an unchanged dividend of R22,22 per share, representing a yield of 16% on our year-end valuation. We will receive this dividend of R1,4mn in September.
We acquired a new investment during the course of the year, in SOLBE1, an empowerment structure related to Sasol. So far, it only makes up 5% of our NAV, but we hope to get the chance to further increase our investment. We think Sasol will re-start dividend payments within the next year, and SOLBE1 will then have a fairly high dividend yield.
The market price of MTN Zakhele Futhi (MTNZF) – the BEE shareholder of MTN South Africa – increased by 142% from a year ago. These shares are highly volatile, as they effectively represent an option on the share price of MTN Holdings, the listed provider of cellular communications in Africa and the Middle East. Expect a lot more volatility in the future – both to the upside and the downside. We utilised some weakness earlier in the year to add to our holding but should have bought a lot more, with the benefit of hindsight.
In our first year of ownership, Ritchey Crane Hire had a tough time. This was due to the negative effect the dysfunctional state of Transnet had on coal miners’ ability to transport their product. Beagle is the anchor BEE shareholder in Ritchey.
The “other” line includes our investment in TIP One, which is listed on the Cape Town Stock Exchange and is essentially an open-ended investment vehicle where management intends to acquire tranches of BEE shares in selected companies over time. This will be done in exchange for shares in TIP One, thereby providing liquidity for shareholders in these valuable, but illiquid, schemes. To date, TIP One has only made a few small investments, and the share price is only slightly higher than our original cost
In the year to March 2021, dividends of almost R2mn were received. Beagle also has an interest-free loan of R1,1mn from Reef, in terms of their CSI program. We also borrowed R5mn from Merchant West and raised R4,2mn in new equity from shareholders. After adding to the existing investments and making the new investment in SOLBE1, Beagle ended the year with cash resources of R0,7mn.
Included in the NAV is a deferred tax liability of R4,5mn. This represents the capital gains tax which Beagle would have to pay if it sold all its investments today.
Some administration
The release of these results also provides us with our regular semi-annual liquidity window. If anyone wants to sell any of their shares, please let me know. And if there are any buyers – you know where to find me. Unfortunately, we cannot guarantee that you will be able to buy or sell any shares – that depends on the willingness of other shareholders to transact. Transactions have traditionally happened at the audited NAV per share.
Beagle has enjoyed very good returns over the years, and the directors of Beagle are comfortable with the current investment portfolio. However, as you plan your personal financial affairs, do not extrapolate this history into the future. Beagle is an investment company with a highly concentrated, illiquid portfolio. The directors of Beagle will continue to do their best to ensure a positive outcome, but this cannot be guaranteed. Also, an investment in Beagle cannot easily be realized, so you should never invest with money you might need urgently at some point.
Thank you for joining us on the voyage of the Beagle, and best wishes for the rest of the year!
Piet Viljoen