With the recent flood of good news on GCSE and A level results, it is easy to forget that there are many young people who are being let down by our education system.
Needs improvement
Every year, it is estimated that 200,000 children leave primary school at 11 unable to read or write to the required level. According to the OECD, the UK now has the lowest rates of literacy of any developed nation – 16.4% of adults in England, or 7.1m people, can be described as having very poor literacy skills. Half of the UK prison population has literacy skills no higher than an 11 year old. The economic cost of poor literacy to the UK economy is estimated to be £81bn per year. Following school closures as a result of COVID-19, this problem has worsened, with the reading skills of many disadvantaged children regressing during these lockdowns.
That information came from Literacy Capital, one of the newest funds in the investment companies sector. It started trading on the stock market on 25 June 2021. The underlying fund provides capital to small UK businesses. I would champion it on those grounds alone, but it also has a mission to give away 0.9% of its NAV each year to literacy and education charities. Since it was established, the fund has donated £1.9m.
A family business
The idea for Literacy Capital came from the Pindar family, who own about 47% of it. Paul Pindar was the founder of Capita and its CEO until February 2014. He was then a founder investor at Purplebricks. His son Richard has private equity industry experience and his wife Sharon was heavily involved with a literacy charity, Bookmark.
The fund was established in April 2018 with £54m of funding from friends and family. By the time it listed, the company had made 14 direct investments in unlisted companies and three fund investments. No new money was raised at listing and by the end of June 2021, the NAV was £109.8m.
Ideas for private equity investments are sourced by a team of five plus Richard and referrals from the board (an impressive collection of entrepreneurs and private equity investors) and investors.
Funding growing UK companies
The types of companies that it backs will be profitable and cash generative. They will have earnings before tax, interest, depreciation and amortisation (EBITDA) between £1m and £5m (too small for a typical private equity investor). Any debt in the corporate structure will be modest.
The two largest investments have grown to account for 40% of the portfolio between them. RCI Health is a specialist provider of healthcare services to police, custodial and judicial services and has been expanded by acquisition since Literacy Capital made its investment. Grayce is a recruitment company focusing on business change, IT and data analysis jobs for graduates. Literacy Capital helped transition the business away from its founders, who were looking to retire.
Pet food profit
This article was inspired by this week’s announcement that another large investment, Butternut Box, a pet food company, was being revalued, adding 13p or 7.1% to Literacy Capital’s NAV. We will get an updated NAV next week I think, along with some interim results.
As you have probably guessed, I am a fan of this trust. However, it comes with a couple of caveats.
First, there is no plan to issue more shares in the company and the constrained supply of shares has led it to trade on a significant premium – about 23%+ based on the post-Butternut Box NAV. That is a bit racy.
Second, it is traded on the London Stock Exchange’s specialist funds segment. That makes it hard for many private investors to buy it.
The general consensus here is that the trust should get a main market listing and expand (as long as it has sufficient attractive investment opportunities).
My advice would be, if you are inspired by the story but cannot stomach the premium/cannot buy the shares, just donate to a relevant charity.