Beagle Shareholders’ Letter – September 2021

At the end of September 2021, the NAV per share of Beagle came to R2 777,84 – an increase of 13,7%  from the end of March and 33,8% from a year ago. It is also slightly higher than the R2 684,00 price at which the rights issue was done during September. Please see the attached spreadsheet for a breakdown of the NAV. The NAV of R2 777,84 represents a new all-time high.

Firstly, and most importantly – a big thank you to all the shareholders who supported the rights issue in September. We managed to raise R4,2mn from our existing investors. As mentioned at the time, there are many compelling investment opportunities available in the BEE space, and we hope to invest the proceeds of the rights issue sensibly. From very small beginnings, Beagle now controls assets of R52mn.

As you know, 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 mainly 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 51%.

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

Beagle’s biggest investment is in Goldrush, a major player in the alternative gaming (Bingo, LPM’s and Online Betting) industry in South Africa. The value of this investment has declined marginally since March. Ongoing lockdowns over the past year affected Goldrush negatively, but it bounced back once lockdowns were lifted.

Our second biggest investment, YeboYethu (YY), the BEE shareholder of Vodacom SA, has enjoyed a 18% increase in its share price since March. It also paid us a dividend. As YY is listed on the JSE, we can expect continuing volatility in its “fair value” as the share price moves around a lot more than the actual value of the business.

Phuthuma Nathi (PN) owns 25% of Multichoice SA. It’s market implied fair value  has declined by 5% – or R6 per share – since March. But we were also paid a dividend of R22.22 per share, or an amount of R1,3mn. This represents a dividend yield of over 15%. 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.

The valuation of the Reef Group, an unlisted manufacturer of electronic switching boxes has increased by 18% since March. Despite lockdowns and a tough economic environment, the Reef group has continued to grow revenue and profits. Trading remains very strong and we are heading for record profits this year.

The MTN share price continues to recover from the lows of 2020, and the valuation of our holding in MTN Zakhele (MTNZ), the empowerment partner of MTN, benefitted accordingly.  These shares effectively represent an option on the share price of MTN, and their price increased by 80% over the period. Unfortunately, MTNZ is still small in our lives, representing only 4% of assets. This has been one of our biggest mistakes of omission – not buying more when presented with the opportunity! We did add a little bit to our position during the period, but should have bought a lot more.

Over the past 6 months we made one new investment – in SOLBE1 shares. SOLBE1 shares are Sasol empowerment shares, which trade at roughly half the price of normal Sasol shares, despite having exactly the same economic rights. As at the end of September, SOLBE1 shares make up 4% of Beagle’s assets.

We increased our investment in UCP – the unlisted holding company of Ritchey Crane Hire –  by just over R1mn. UCP also paid us a dividend of R3,6mn. However, this is not a sustainable dividend, it is a once-off arising from a balance sheet rightsizing. Trading at Ritchey remains average, with the problems at Transnet a major constraint for coal mines and that filters through to Richie.

Our cash balance has increased to R6,2mn, mainly due to the R4,2mn proceeds from the recent rights offer. We received total dividends of R5,2mn, and made investments of R3,2mn.

Beagle has an interest free loan of  R1,3mn from the Reef Group, the proceeds of which are invested in the Counterpoint Money Market fund, thereby picking up the spread. This loan earns Reef  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.

After the end of the period, Beagle entered into a loan agreement with Merchant West. The loan is for an amount of R5mn and is repayable quarterly over 5 years. The annual payment amounts to  R1,3mn. Beagle expects to receive annual dividends of R4mn going forward, so the loan repayments are affordable. The cash on hand, plus the proceeds of the loan will be used to expand Beagles investment portfolio.

Historic returns

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

Since inception, Beagle shareholders have enjoyed returns of 23% p.a.

The following table compares our performance against that of the JSE ALL Share Index (Total Return) over the past 5 years.

As you plan your personal financial affairs, do not extrapolate the performance 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.

As always, post this results announcement there is an opportunity to transact. Please let me know if you are interested in buying or selling any shares.

Also, please reach out if you have any questions. And – if you come across any good investment ideas, please make sure to let me know!

Piet Viljoen