Investment trust Literacy Capital LON:BOOK has sold one of its larger investments in full, generating a strong return for shareholders and a substantial amount of cash, which will ultimately fund future investments. The transaction at completion will deliver a return for shareholders in excess of 10x the capital invested and valuing Literacy’s stake at more than a 50% premium to the 31 March 2023 carrying value.
Literacy Capital is an investment trust that was launched in 2017 by Paul Pindar and Richard Pindar, before it listed on the London Stock Exchange’s main market in June 2021. The fund focuses on opportunities to invest for the long-term in growing private UK businesses where a clear route to creating additional value can be seen.
Literacy Capital also has a unique charitable objective to donate 0.9% of annual NAV to charities focused on improving literacy in UK children. £7.1 million has been donated or reserved for donation to charities since the trust’s creation in 2017 up until 30 June 2023.
Literacy Capital shares are up over 160% since it listed in 2021
Shares in Literacy Capital are up over 21% in the last six months and 18% on a YTD basis. The fund is trailing the Association of Investment Companies private equity benchmark, however, which is up 36.2% on a share price total return basis at the moment.
Note however that the trust has not been trading in London for very long, Investors who bought in at the start are still looking at a return of over 160% since June 2021.
Top five reported holdings by Literacy Capital
- RCI Group (30.6%)
- Grayce (19.8%)
- Techpoint (11.5%)
- Antier Homes (5.7%)
- Butternut Box (5.1%)
Following the transaction involving Kernel Global in March 2023 (which delivered a total return of 9.8x to shareholders and a 48.9% premium to carrying value), this is another example of the progress made by a portfolio company and value created since Literacy’s investment, as well as prudence in the fund’s carrying valuations.
Had the sold asset been valued on 31 March 2023 in line with the valuation in this announcement, Literacy’s estimated net asset value per share would have been 12.7p per share, or 2.6%, higher at 480.0p (31 March 2023: 467.3p as announced on 27 April 2023).
Literacy said it intends to use the cash proceeds to fully repay the amounts drawn under its revolving credit facility, before recycling these proceeds into new investments. This represents another highly profitable and successful investment for Literacy, demonstrating the growing maturity and interest from large institutional investors in Literacy’s portfolio companies.
Signing and exchange subject to regulatory clearance exchange has taken place, with clearance and completion expected by the end of October. The fund manager said it would provide further information in September, once details of the transaction can be disclosed in full.
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The Armchair Trader added Literacy Capital to its long term buy list on 8 June. We liked the fact that the majority of the trust’s directors have founded or scaled up large businesses. It is structured as a permanent capital vehicle and the majority of the fund is owned by its directors, the wider team and family members.
The trust owns businesses across the UK in a variety of sectors, and CEO Richard Pindar remains very upbeat about the prospects for domestic UK businesses, despite the negative publicity in UK newspapers about the state of the economy.
