HgCapital Trust plc (LON:HGT’) has announced its interim results for the period ended 30 June 2023.
HGT provides investors with a listed vehicle to invest in unquoted businesses managed by Hg, Europe’s largest investor in software & technology-enabled services businesses.
The objective of HGT is to provide shareholders with consistent long‑term returns in excess of the FTSE All‑Share Index by investing predominantly in unquoted companies where value can be created through strategic and operational change.
Highlights over the first half of 2023 include:
¡ Strong portfolio trading continued to be the main driver of performance, contributing to a total return NAV increase of 4.6%, closing the period at 473.1p NAV per share and net assets of £2.2 billion
¡ Share price total return of +7.1% over the period, closing at 370.50p per share and a market capitalisation of £1.7 billion
¡ Against an uncertain macro environment, Hg maintained a disciplined approach to new investment, deploying £33 million on behalf of HGT, including one new investment and several follow-on investments in the portfolio to finance bolt-on M&A
¡ £229 million returned to HGT, including the full realisation of Transporeon
¡ Continued and significant long-term NAV outperformance of the FTSE All-Share
¡ Performance provided through access to Hg’s investments, which would in aggregate represent the second largest and the fastest growing technology firm in Europe[1]
An investment of £1,000 made 20 years ago in HGT would now be worth £24,963, a total return of 2,396%. An equivalent investment in the FTSE All-Share Index would be worth £4,208[2]
Jim Strang, Chairman of HGT, commented:
“Your Company has delivered a resilient performance over the first six months of the year. The portfolio continued to deliver strong underlying performance with sales and EBITDA across the top 20 investments (76% of the portfolio) growing at 29% and 30% respectively. Investment activity was noticeably slower in the first half of 2023 as the Manager took a cautious stance on adding to the portfolio. Conditions for transactions in the second half of the year appear more supportive.”
David Toms, Head of Research at Hg, commented:
“Our portfolio continues to be driven by growth from existing customers, itself supported by strong renewal rates, cross and up-sell. We enhance this with consistent M&A, which remains a powerful accelerant of our performance.”
SUMMARY PERFORMANCE
| 31 August 2023 | % Total return | 30 June 2023 | 31 December 2022 | % Total return | |
| NAV per share | 473.3p | +4.7% | 473.1p | 456.6p | +4.6% |
| Share price | 389.0p | +12.4% | 370.5p | 350.5p | +7.1% |
| FTSE All-Share Index | +2.7% | +2.6% | |||
| YTD 2023 Movement | H1 2023 Movement | ||||
| Net Asset Value | £2.2bn | +£77m | £2.2bn | £2.1bn | +£76m |
Source: Hg, Factset. All references to total return allow for all historic dividends being reinvested
Note: Hg undertakes full revaluations of the portfolio on a quarterly basis, the next process being 30 September 2023, therefore the movement in unrealised value of the portfolio to the end of August 2023 is attributable to post-period transactions and FX only.
PERFORMANCE OVERVIEW
Net assets of £2.2 billion, with continued long-term outperformance of the FTSE All-Share over one, three, five, ten and twenty-year periods:
– NAV per share of 473.1p, a total return of +4.6% for the six months to 30 June 2023.
– Share price total return of +7.1% over the year
– Proposed interim dividend of 2.0p per share
Strong double-digit growth from the realised and unrealised portfolio:
– Revenue and EBITDA growth of 29% and 30% respectively across the top 20 investments (76% of the portfolio) over the last twelve months.
– £229 million of cash returned to HGT primarily through the realisation of Transporeon and secondary fund transactions
– Valuation multiple (EV/ LTM EBITDA) of 26.2x and net debt to LTM EBITDA ratio of 7.4x for the top 20 investments (76% of the portfolio)
Continued investment and commitments to drive future value:
– £33 million invested on behalf of HGT into one new platform investment, and several follow-on investments to support the growth of existing portfolio companies
– New commitment of €125 million to Hg Mercury 4. Total outstanding commitments at 30 June 2023 of £1.1 billion (December 2022: £1.2 billion). These will be deployed over the next three to four years
– HGT’s strong liquidity position coupled with commitments across the most recent vintage of Hg funds ensure that the company is well-positioned to take advantage of investment opportunities as they arise
Credit facility increase:
– The Board of HGT agreed a c.£60 million increase to the multi-currency revolving credit facility bringing the total facility to £350 million, the full balance of which was available at period-end
POST PERIOD EVENTS
§ NAV of 473.3p at 31 August, YTD performance of 4.7% reflecting post-period transactions and FX movements.
§ Net assets of £2.2 billion at 31 August.
§ Share price of 389.0p at 31 August, YTD performance of +12.4%.
§ Estimated gross proceeds of £55 million from the full exit of Commify, and partial exits of Azets and TeamSystem to be received post period, at an average uplift to carrying value of 39%.
§ New investment of £6m in Nomadia
§ Further €50m commitment to Hg Mercury 4 (€175 million total commitment)
§ Available liquid resources (including the credit facility) post-completion of all announced transactions and the interim dividend payable in October 2023, are £657 million (30% of 31 August pro-forma NAV).
§ Outstanding commitments of £1.1 billion (49% of 31 August pro-forma NAV). We expect these to be drawn down over the next three to four years.
OUTLOOK
Commentary from Hg (the Manager):
We believe the combination of the long-term nature of listed private equity investment with the types of business that Hg invests in, and robust double-digit growth in trading, can continue to drive long-term performance
§ Against a challenging macro environment, Hg’s portfolio has demonstrated resilient performance
§ The portfolio companies remain focused on selling business-critical and non-discretionary software and services to their underlying business customers, delivering predictable levels of recurring revenue
§ Positive trading outlook underpinned by long-term drivers for workplace automation and digitisation which are set to transform the workplace for professionals for decades to come
§ While we continue to screen a number of attractive investment opportunities, we remain cautious given the ongoing macro uncertainty. Bolt-on M&A remains a key focus to deploy capital and create incremental equity value in the portfolio
§ During the first half of 2023, we remained focused on returning capital to Hg clients, distributing c.£1 billion of liquidity, including £109 million to HgCapital Trust. This followed an exceptionally strong 2022, when we returned a total of £4 billion, of which HGT’s share was £404 million. Further liquidity events are expected over the next twelve months
