At the end of September 2023, the NAV per share of Beagle was R4 136 – a decrease of 4.5% from the end of March and up 11% from a year ago. Bear in mind Beagle also paid a dividend of R50 per share during the period – its first dividend ever. Adding back the dividend means that Beagle was down 3.5% for the 6-month period, while the JSE All Share Total Return Index was down by 4.9%.

This is how our NAV per share has progressed over time:

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 to 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 our local and global unit trusts managed by our associate Merchant West Investments, 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.

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 internally on a consistently conservative basis – some of which we only revalue once a year in March.

Over the past ten years, Beagle has compounded its NAV per share at 21.1% p.a. compared to the 5.1% p.a. delivered by the JSE All Share Index (both with dividends reinvested). Beagle has certain advantages which have allowed it to do well:

  1. It is a privately owned business, not subject to the ebbs and flows of public opinion and sentiment.
  2. It has permanent capital, allowing it to invest in illiquid situations when they are favourably priced. Beagle never has to be a forced seller, unlike a unit trust
  3. It has access to cheap, 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.

Our portfolio

We have not revalued Reef Holdings at this stage but will do so at year-end. So far this year, Reef Switchboards has had another record year, while Victoria Engineering is trading at the same levels as last year. We received a R3.9mn shareholder loan repayment from The Reef Group during the period.

Over the past six months, Goldrush – a significant player in the alternative gaming (Bingo, LPM’s, Sports Betting and Online Gaming) industry in South Africa has maintained its revenue at last year’s levels but increased costs due to load-shedding has hurt its margins, leading to a decline in EBITDA on a rolling 12-month basis. As a result, we have revalued it down by 13%, using the same multiple (7X) on the lower EBITDA level. We also received dividends from Goldrush during the period.

YeboYethu (YY), Vodacom’s BEE shareholder’s market price declined by 18%.

The market price of Phutuma Nathi (PN) – the BEE shareholder of MultiChoice South Africa – declined by 25% on the back of a 9% dividend cut. The dividend declined to R20.37 from R22.22 per share a year ago. At the current share price of R97, the dividend represents a yield of 21%. We added a small parcel of Phutuma Nathi during the period.

The value of Beaprop (Beagle’s subsidiary that owns shares in Spear REIT) increased by 12% during this period. Spear REIT owns and manages property mainly in Cape Town. One of the biggest problems facing businesses is load-shedding, and the fact that Cape Town provides its residents with two stages of load-shedding less than the rest of the country has proven to be a strong drawcard. We think Cape Town – and the Western Cape – will continue to increase its advantages over the rest of the country for tenants, thereby providing a tailwind for the business. Beaprops ownership in Spears’ assets is highly leveraged (13% equity to assets, on a look-through basis). Importantly, the debt is non-recourse. So far, just over one year into the transaction, things seem to be on track for a satisfactory IRR despite unexpectedly high interest rates.

The price of SOLBE1, the Sasol BEE shares, was flat over the period at R160, but we managed to buy a small parcel at R113 during the period. Shares with low liquidity like this one provide a good buying opportunity from time to time.

The market price of MTN Zakhele (MTNZ) – the BEE shareholder of MTN South Africa – declined by 10% from yearend. The weak Nigerian Naira, which has just about halved against the Rand over the past year (and you thought we had a weak currency!), is hurting the value of MTN. We sold a bit at higher levels.

Ritchey Crane Hire (held via UCP holdings) is enjoying a good year after investing in more cranes and other capital equipment. The improvement of operations at Transnet has also helped. We have not revalued it, as our practice is to do so annually, at year-end.

In the six months to September, Beagle received ongoing dividends of R1.9mn, down slightly from last year at this time. Operating expenses were R655k. Interest expense was R250k. Beagle repaid the full amount outstanding of its loan to Merchant West on 31 September, so – apart from a non-interest-bearing loan from Reef – Beagle is now debt-free, and there will be no interest costs going forward. Beagle ended the period with cash resources of R5.3mn. This puts us in a good position to take advantage of any opportunities the market may provide.

Some administration

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.

Beagle has enjoyed excellent returns over the years, and the directors of Beagle are comfortable with the current investment portfolio. However, do not extrapolate this history into the future as you plan your financial affairs. 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.

Piet Viljoen