To all our shareholders and friends
At the end of September 2024, the NAV per share of Beagle was R6 352 – an increase of 3.8% from the end of March, up 53.6% from a year ago. Bear in mind Beagle also paid a dividend of R100 per share during the period – double the previous year’s R50 per share dividend. Adding back the dividend means that Beagle was up 5.4% for the 6 months, while the JSE All Share Total Return Index increased by 18.6%. We have not revalued our biggest asset, Reef, during this period. We will do so at year-end.
This is how our NAV per share has progressed over time:
As you know, Beagle is a private investment holding company set up to act as an empowerment investor. Its primary shareholder is the RECM Foundation, which provides funding for educational activities to its beneficiaries, mainly black children. The foundation’s trustees are all black and independent of RECM. Black shareholding of Beagle currently stands at just over 51%.
As a spin-off, Beagle also provides RECM’s staff, the staff of its extended “business family,” and 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 at https://recm.co.za/beagle/ and the RECM Foundation at https://recm.co.za/recm-foundation/.
2024 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 23.1% p.a. compared to the 9.5% p.a. delivered by the JSE All Share Total Return Index. Beagle has certain advantages which have allowed it to do well:
- 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. Unlike open-ended investment vehicles like unit trusts, Beagle never has to be a forced seller.
- Its BEE status gives it access to cheap, non-recourse leverage.
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, its subsidiaries, Reef Switchboards and Victoria Engineering, are trading at similar levels to last year. We received an R4.4mn 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, managed to grow total income by 3% to R952 mil, when compared to the same time last year – this reflects a combination of lethargic trading in the land-based gaming division (Bingo halls and Limited Pay-out machines) while online gaming continued to grow at a rapid pace. The slightly better trading in the six months allowed the company to pay dividends, repay some debt, buy back some shares, and continue growing its footprint. Our valuation for Goldrush Group at the end of September is 2% higher than at the end of March. The business model has significant operational leverage, which allows its shareholders to participate in any meaningful growth in the South African economy. Beagle further increased its stake in the business during the period under review.
YeboYethu (YY), Vodacom’s BEE shareholder, saw its market price increase by 4.2% to R25 per share. Beagle also received a final dividend of 96 cps.
The market price of Phuthuma Nathi (PN) – the BEE shareholder of MultiChoice South Africa – declined by 11% to R87 per share after paying a dividend of R20,73 per share. The dividend was unchanged from a year ago. At the current share price of R87, the dividend represents a yield of 24%. We continued to add to our holding of Phutuma Nathi during the period.
The value of Beaprop (Beagle’s subsidiary that owns shares in Spear REIT) increased by 51% during this period. Spear REIT owns and manages property mainly in Cape Town. We think Cape Town – and the Western Cape – will continue to increase its advantage over the rest of the country for tenants, thereby providing a tailwind for the business. Declining interest rates will magnify this, as Beaprop’s ownership in Spear is highly leveraged (13% equity to assets, on a look-through basis). Notably, the debt is non-recourse. So far, our investment thesis is playing out nicely.
The price of SOLBE1, the Sasol BEE shares, declined by 17% to R100 per share. During the period, we added to our holdings of SOLBE1 at the R100 level, as we believe Sasol is undervalued. SOLBE1 has the same economics as a Sasol ordinary share.
The market price of MTN Zakhele (MTNZ) – the BEE shareholder of MTN South Africa – declined further 38% to R9 a share. We sold 11% of our position at higher levels during the six months. This is nothing to be proud of – we should have sold everything.
Ritchey Crane Hire (held via UCP holdings) is tracking in line with last year’s performance. We have not revalued it for these results, as our practice is to do so annually, at year-end.
In the six months to September, Beagle received ongoing dividends of R3,4mn, up sharply from the R1,9mn we received during the same period last year. The main reason for this was a dividend of R1,4mn from UCP and our increased shareholding in Phuthuma Nathi. Operating expenses were R968k, up from R655k a year ago. The main driver was increased management fees due to a sharply higher NAV per share over last year. Beagle is now debt-free, so there was no interest expense. Beagle ended the period with cash resources of R7.6mn. This puts us in a good position to take advantage of any further opportunities the market may provide.
Some administration
Releasing 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.
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.