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Edison Investment Research Limited
London, UK, 26 September 2023
HgCapital Trust: Seizing ‘buy-and-build’ opportunities HgCapital Trust (HGT) delivered a 4.6% NAV TR in H123, with its performance continuing to be mostly driven by robust trading across its portfolio (with the associated increase in portfolio value in H123 of £203.8m, or 8.3% of end-2022 portfolio value) and a minor positive impact from multiples (£34.1m or 1.4%). Hg was cautious in terms of new platform investments in H123, but saw record high M&A activity across its portfolio, highlighting increasingly attractive pricing and a strong flow of opportunities for smaller bolt-on investments. HGT’s 60% coverage of outstanding investment commitments by its liquid resources makes the trust well positioned for a potential uptick in PE deal activity.
Despite the tougher external environment, SaaS companies should continue generating healthy top-line growth of c 15% pa and increasing profitability over the next two years, based on current Refinitiv consensus. HGT is a quality play in the sector, underpinned by the defensive growth profile of its holdings and Hg’s sector expertise, in-house value creation team and buy-and-build strategy. HGT’s historical revenue and EBITDA growth across its top 20 holdings was 20–30% pa at a margin above 25% (H123: 30%). This includes c 10–15% pa organic revenue growth of HGT’s portfolio companies, which is less dependent on new client additions compared to some higher-growth tech businesses, according to Hg.
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1733489 26-Sep-2023
