Literacy Capital (BOOK)    515p

Market cap: £310 million

We have been keeping a watchful eye on UK private equity investment trust Literacy Capital (BOOK) for some time, and this week’s quarterly NAV (net asset value) and trading update has finally convinced us to go nap.

The trust was set up in 2017 and listed in June 2021, since when its NAV has risen at a 47% compound annual rate making it the best-performing UK listed trust over that period.

The trust says its purpose is ‘to invest in and support UK companies and help their management teams to achieve long-term success’, and its closed-end, permanent capital structure means it can work as a ‘long-term, highly ambitious partner’.

The company is focused on smaller businesses where its expertise can make a significant contribution to their size and value, in turn generating superior returns for shareholders.

It also has a charitable mission, helping disadvantaged children in the UK learn to read, and donates the equivalent of 0.9% of NAV every year with total donations since 2017 having reached £10 million.

Since listing, net assets have increased by 225% and the share price has increased by 230% against a 22% return for the FTSE All-Share and a 2% loss for the FTSE investment company index.

So why are we recommending the shares now? Over the 12 months to the end of June, the share price has only risen 12.7% - in line with the FTSE All-Share – meaning the trust has de-rated after two years of blistering growth.

Richard Pindar, chief executive of the trust’s manager, accepts there have been ‘some obvious challenges for UK businesses in recent times, but we are confident that our portfolio companies can continue generating further upside, particularly if macroeconomic conditions show signs of improvement’.

In the second quarter, the trust’s largest holding (around 32% of NAV) RCI Group, which provides clinical services and complex care, was the largest contributor to revenue and NAV growth, while flexible office space provider Cubo Work, another top five holding (representing around 6% of NAV), also made ‘a material positive contribution’ due to its rapid expansion and sales success.

No new companies were bought or sold during the quarter but the trust invested £5 million to support existing companies’ growth plans.

The portfolio is continually assessed to see how capital can be recycled, and Pindar says he sees plenty of new investment opportunities to redeploy capital into companies where the founders value the expertise the managers bring.

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