Beagle Shareholders’ Letter – September 2017

I am pleased to report that the NAV per share of Beagle has increased by 11.8% from R1 406 at the end of March to R1 572 at end September, i.e. for the first 6 months of this financial year. It is also up by 8% from the level of R1 453 at which the previous round of transactions were done.

Just to remind you, Beagle is an investment entity, which has been set up specifically to act as an empowerment investor. Its main shareholder is the RECM Foundation which provides funding for pre-primary and primary schools in some of Cape Town’s poorest townships. As such, its beneficiaries are all black schoolchildren. The trustees of the Foundation are also all independent of RECM, and are all black. Black shareholding of Beagle currently stands at 53%

As a spin off, Beagle also provides RECM’s staff and close “business family” with an investment opportunity which is differentiated from our unit trusts, our hedge fund or RAC shares.

Over the past 6 months. the valuation of our biggest investment, the Calibre private equity partnership – which has as its only asset shares in the Reef Group, an unlisted manufacturer of electronic switching boxes – has declined by 4%. It did repay a significant portion of its loan from us, increasing its equity value.

Phutuma Nathi 1 – the BEE shares of Multichoice (the guys who are responsible for programming on DSTV) – has declined by 6%. It should be noted that they paid us a dividend of R19,24 per share, so it hasn’t done that badly. We added to our holding of this investment over the past 6 months – before they declared and paid the dividend. PN is valued on a P/E of less than 6, and a dividend yield of 16%.

The value of our shareholding in Yizani – the BEE shares in Media 24 – has grown by 106%. However, this is a very small investment for us. With the benefit of hindsight, we should have owned much more!

The value of our investment into the BEE structure of Goldrush, a major player in the alternative gaming industry in South Africa, has grown by 10% since March.

Our cash balance has increased, due to the generous dividend policy of Phutuma Nathi, Calibre PE repaying a portion of its loan and our inability to find investments that meet our high expectations. (Despite Yizani hiding in plain sight!) We raised some more cash through the sale of shares in October, which gives us a nice “war chest”. We might have a n opportunity to increase our shareholding in Goldrush – but if any of you comes across an interesting investment idea, please share it with me.

Included in the NAV is a tax liability, which is our provision for capital gains tax. This is only payable when we sell an investment. We are very happy to pay capital gains tax, because it means our investment has gone up in value. Given very high tax rates in South Africa today, we do take care in structuring our investments to – legally – minimize our potential tax liability.

Please find attached a spreadsheet setting out our investment portfolio.

Historic returns

This table sets out the value of our NAV per share since inception:

We have enjoyed very good returns so far (31% p.a.) despite mistakes of omission (Yizani) and commission (IPT).

The following table compares our performance against that of the JSE ALL Share Index (Total Return) over different time periods:

It just goes to show, active management can outperform passive!

However, as you plan your personal financial affairs, do not extrapolate our history into the future. Beagle is an investment company with a concentrated, illiquid portfolio. The directors of Beagle will continue to do their best to ensure a positive outcome, but this cannot be guaranteed.

Piet Viljoen