At the end of September 2022, the NAV per share of Beagle was R3 724 – an increase of 5% from the end of March and 34% from a year ago. This NAV represents a new all-time high.
Firstly, and most importantly – a big thank you to all the shareholders who supported the share issue. We raised R7,2mn from our existing investors and welcomed a few new investors. The issue of shares allowed us to make a new investment into Spear REIT, on which more later. Beagle now controls assets of R83mn.
As you know, Beagle is an unlisted investment holding company set up to act as an empowerment investor. Its main shareholder is the RECM Foundation which provides funding for educational activities with its beneficiaries, mainly black children. The trustees of the Foundation are independent of RECM and are all black. Black shareholding of Beagle currently stands at just over 51%.
As a spin-off, Beagle also provides the staff of RECM, the staff of its extended “business family”, as well as other friends with an additional investment opportunity that is differentiated from the local and global unit trusts managed by our associate Counterpoint, our hedge fund managed by RECM, or our listed investment companies RAC and Astoria.
2023 Interim results
To calculate the interim net asset value, we mark Beagle’s listed assets to market at prevailing market prices as of 30 September. The unlisted assets are valued on a consistently conservative basis. While our NAV per share grew by 5% over the six months, the All-Share Total Return Index declined by 13,9% over the same period.
Over the past ten years, Beagle has compounded its NAV per share at 23,8% p.a. compared to the 9,5% delivered by the JSE All Share Index (with dividends reinvested). Beagle has certain advantages which have allowed it to do well:
Those advantages are:
- It is a privately owned business, not subject to the ebbs and flows of public opinion and sentiment.
- It has permanent capital allowing it to invest in illiquid situations when they are favourably priced.
- It has access to cheaper, non-recourse leverage due to its BEE status.
In managing Beagle, our most important activity is to sit still and watch its investments compound their value due to a combination of underlying business growth magnified by leverage. Inactivity is well rewarded. We love our job.
Over the past six months, we made a new investment into Spear REIT and added to our holdings of Goldrush and SOLBE1. The amount required for these investments was just over R7mn, exceeding our cash holdings. To fund this shortfall, we raised R7,2mn via the issue of 1 996 new shares at a price of R3 585 per share.
We have not revalued Reef Holdings at this stage but will do so at year-end. So far this year, Reef Switchboards is having a record year, while Victoria Engineering is struggling a bit.
Over the past 12 months, Goldrush – a significant player in the alternative gaming (Bingo, LPM’s, and Sports Betting) industry in South Africa – has generated a record level of EBITDA of almost R400mn. We have revalued it higher by 26%, using the same multiple (7X) on the higher EBITDA level. We also received our first-ever dividend from Goldrush during the period. We added a bit to our holding at favourable prices.
The market price of YeboYethu (YY) – the BEE shareholder of Vodacom – increased fractionally, while we received a divided as well.
The market price of Phutuma Nathi (PN) – the BEE shareholder of MultiChoice South Africa – declined marginally, while it paid us a dividend of R22,22 per share, representing a yield of 16%.
During the period, we made a new investment of R6,9mn into Beaprop (Pty) Ltd (“Beaprop”). Beagle owns 100% of Beaprop, which in turn owns 3,7mn shares of Spear REIT, a Western Cape focussed property investment company. The transaction comprised Spear REIT units worth R29mn, funded 24% by Beagle providing equity (i.e. R6,9mn) and 76% by Nedbank providing non-recourse debt, with Spear REIT underwriting the debt. Spear REIT currently pays a dividend yield above the interest rate Nedbank charges on the debt, and this dividend is expected to grow moderately over the next few years. The value of Beaprop has declined, as the Spear share price has fallen a bit since we invested.
We added a small amount to our holding of SOLBE1, an empowerment structure related to Sasol. SOLBE1 paid its first dividend during the period, and its share price increased by 12%.
The market price of MTN Zakhele (MTNZ) – the BEE shareholder of MTN South Africa – declined by 30% from a year ago. The share price of MTN Zakhele is volatile, as it effectively represents 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.
As efficiencies at Transnet recovered, Ritchey Crane Hire had a better time. We have kept its value unchanged.
In the six months to September, Beagle received dividends of over R2mn. Beagle ended the period with cash resources of R1,7mn.
To date, Beagle has had a policy of reinvesting all cashflows in order to grow the per-share NAV of the company. Due to its robust pipeline of dividend income, this policy is under review. We will announce any changes to this policy at the time of our year-end results.
It is worthwhile noting that, included in the calculation of the NAV, is a deferred tax liability of R4,6mn. This represents the capital gains tax Beagle would have to pay if it sold all its investments today. We still have some debt outstanding to Merchant West, but this is being steadily whittled down.
The release of these results also provides us with our regular semi-annual liquidity window. Please let me know if anyone wants to sell any of their shares. 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 NAV per share, but this cannot always be guaranteed either. As of the end of October, the NAV per share declined marginally to R3 706 per share due to market movements. We will use this NAV for transactional purposes. Please note that this is not a general offer to the public, but rather an explanation of the administration if any shareholder wants to transact.
Beagle has enjoyed excellent returns over the years, and the directors of Beagle are comfortable with the current investment portfolio. However, as you plan your 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 realised, 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!