Beagle Shareholders’ Letter – September 2020

At the end of September, the NAV per share of Beagle came to R2 077,17, an increase of 17,9% from R1 760,53 at the end of March. It is also up by 6,9% from R1 943,03 per share a year ago. Please see the attached spreadsheet for a breakdown of the NAV. The NAV of R2 077,17 represents a new all-time high.

Beagle is an unlisted investment holding company, which has been set up specifically to act as an empowerment investor. Its main shareholder is the RECM Foundation which provides funding for educational activities in some of Cape Town’s poorest areas. As such, its beneficiaries are all black children. The trustees of the Foundation are also all independent of RECM, and are all black. Black shareholding of Beagle currently stands at just over 54%.

Beagle also provides CPAM staff, RECM staff and our close “business family” members with an investment opportunity which is differentiated from our unit trusts, our hedge fund or RAC shares.

Beagle’s biggest investment is in Goldrush, a major player in the alternative gaming (Bingo, LPM’s and Sports Betting) industry in South Africa. The value of this investment has declined by a further 6,7% since March, when it was reduced by 30%. Goldrush continues its recovery since being shut down completely during the first 3 months of lockdown. Despite its Bingo halls currently being limited to 50% capacity, the overall business is experiencing a rapid rebound in revenue, but still trades at levels below that of the same time last year. Costs have been reduced.

Our second biggest investment is Phuthuma Nathi (PN), which owns 25% of Multichoice SA. The valuation of PN has increased by 29,6% per share since March. They also paid us a paid us a dividend of R22.22 per share, or an amount of R1,3mn. This represents a dividend yield of just over 20%. Despite the highly competitive environment for Pay TV, MultiChoice SA continues to grow its revenue, and we think it will continue to be able to pay good dividends in the years to come. We once again added to our position in the period under review.

YeboYethu (YY), the BEE shareholder of Vodacom SA enjoyed a 94% increase in its share price since March. It also paid us a dividend. YY is listed on the JSE, explaining the massive volatility in its “fair value” as determined by its market price.

The valuation of the Reef Group, an unlisted manufacturer of electronic switching boxes has increased by 8,8% since March. Despite the lockdown, the Reef group has continued to grow revenue and profits.

The MTN share price has recovered a bit from the COVID related sell off earlier in the year, and the valuation of our holding in MTN Zakhele, the empowerment partner of MTN (MTNZ), benefitted accordingly. These shares effectively represent an option on the share price of MTN. MTNZ is still small in our lives, representing only 2% of assets.

The value of our shareholding in Welkom Yizani – the BEE shareholder of Media 24 – increased by 18% since March. We continue to accumulate shares in this tightly held and illiquid counter.

Our investments in Tip1, Unicorn and Geosearch are nominal, and their valuations have not changed.

Our cash balance has increased to R6,4mn, mainly due to the generous dividend policy of Phutuma Nathi. We have also received an interest free loan of over R1mn from the Reef group, which we have invested in the Counterpoint Money Market fund, thereby picking up the spread. This loan helps Reef earn BB-BEE points.

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 as far as possible.

Historic returns

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

Since inception, we have enjoyed returns of 24,6% p.a. In fact, since we started in 2010, Beagles’ intrinsic value has increased by a multiple of 10, i.e. it is that rare investment outcome, a ten-bagger.

The following table compares our performance against that of the JSE ALL Share Index (Total Return) over the past 5 years. It is not surprising, given the poor economic environment in South Africa over the past 5 years, that investment returns have moderated somewhat.

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 management of Beagle will continue to do their best to ensure a positive outcome, but this cannot be guaranteed. Also, trade in Beagle shares will always be constrained. There is no guarantee that you will be able to buy or sell at any specific time. If there are transactions, they will always take place at NAV. Transactions – if any – will take place twice a year, just after interim and year end results.

Right now we do have a few shares for sale, as a result of staff departures. Given our current shareholding structure, and the black shareholding requirements, these shares are available to both black and white people. Preference will obviously be given to black people, in the event of oversubscription. And, as always, the RECM Foundation has first right to purchase.

Please let me know if you are interested in buying or selling any shares.

Also, please reach out if you have any questions.

Piet Viljoen