Last close As at 05/08/2026
GBP3.92
▲ 2.00 (0.51%)
Market capitalisation
GBP1,776m
Research: Investment Companies
HgCapital Trust (HGT) delivered a strong NAV total return of c 36% in the first nine months of 2021, including c 12% in Q321, driven primarily by double-digit earnings growth across the portfolio (LTM EBITDA for top 20 holdings up 29% y o y). Its transaction activity remains high, with the volume of completed and announced investments and realisations at £378m and £204m, respectively in 2021 so far (vs £403m and £364m in the record-high 2020). HGT’s coverage ratio was a healthy c 85% at 10 December 2021 and its liquidity position has been supported with tap equity issues (c £126m in 2021 to 10 December) and a £200m credit facility, £45m of which was undrawn as at 15 November 2021.
HgCapital Trust |
NAV total return of 36% in 9M21 |
Investment trusts |
13 December 2021 |
Analysts
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HgCapital Trust (HGT) delivered a strong NAV total return of c 36% in the first nine months of 2021, including c 12% in Q321, driven primarily by double-digit earnings growth across the portfolio (LTM EBITDA for top 20 holdings up 29% yoy). Its transaction activity remains high, with the volume of completed and announced investments and realisations at £378m and £204m, respectively in 2021 so far (vs £403m and £364m in the record-high 2020). HGT’s coverage ratio was a healthy c 85% at 10 December 2021 and its liquidity position has been supported with tap equity issues (c £126m in 2021 to 10 December) and a £200m credit facility, £45m of which was undrawn as at 15 November 2021.
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Robust investment and realisations activity in 2021 to date |
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Source: HgCapital Trust, Edison Investment Research. Note: *Last column with transactions and realisations announced to 13 December 2021 and liquid resources as % of NAV as at 10 December 2021. |
Why invest in HgCapital Trust now?
HGT’s portfolio companies continue to benefit from the ongoing digitalisation of the economy, accelerated recently by the pandemic. HGT’s transaction activity has been high in 2021 to date and Hg (HGT’s manager) expects further investment and liquidity events over the next 12 months. While valuations in the tech sector remain demanding, we believe that top sponsors such as Hg may still benefit from their strong financial positions, extensive deal origination networks, in-house value creation teams and the ability to pursue a ‘buy-and-build’ strategy.
The analyst’s view
The listed software and services sector has remained supportive for HGT’s portfolio. That said, HGT’s NAV total return (TR) in 2021 to end-September was largely driven by earnings growth across portfolio companies and the company continues to report healthy uplifts on exits to end-2020 carrying values (c 47% on average in 2021 so far vs c 50% in FY20), suggesting a relatively conservative portfolio valuation policy. We believe that its focus on resilient sectors and strong NAV TR over the short, medium and long term to end-September compared to its peers has been reflected in its shares trading in line with NAV (vs a c 20% average discount for PE peers although in line with HGT’s historical trading).
Earnings of portfolio holdings drive NAV TR in 9M21
HGT’s net asset value (NAV) TR was c 36% over the nine months to end-September 2021 (9M21), which is ahead of the c 14% rise of the FTSE All-Share Index and the 21% y-o-y increase of the listed private equity index LPX Europe NAV (rebased to sterling) over the same period. It included a strong NAV TR of 11.6% in Q321, driven primarily by double-digit earnings growth across portfolio companies (Exhibit 1). HGT’s top 20 investments (representing c 81% of HGT’s portfolio value, excluding one investment valued on a basis other than earnings) delivered last 12 months (LTM) EBITDA growth of 29% y-o-y at end-September 2021 (versus 27% at end-June 2021) and LTM sales growth of 25% y-o-y (20%), according to the manager. The average LTM EV/EBITDA for the top 20 investments increased to 26.3x at end-September 2021 (with a debt to EBITDA ratio of 6.5x) from 25.0x at end-June 2021 and 22.1x at end-2020, contributing to its 9M21 NAV TR, although to a lesser extent.
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Exhibit 1: Changes in HGT’s portfolio valuation in H121 and Q321 |
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Source: HgCapital Trust. Note: Net acquisitions is difference between acquisitions and disposals at last carrying value. |
HGT’s longer-term NAV TR, which is the best indication of private equity (PE) fund performance, has been visibly above the FTSE All-Share and LPX Europe NAV Index, with the three-year NAV TR at c 29% pa (vs c 3% for FTSE All-Share and 12% for LPX Europe Listed Private Equity Index) and the five-year NAV TR to end-September 2021 at c 24% pa (c 6% and c 16%, respectively). The company also posted a materially higher NAV TR to end-September 2021 over one, three, five and 10 years compared to its peer group average (Exhibit 2). Our group includes direct private equity investors (Apax Global Alpha, NB Private Equity, Princess Private Equity, Altamir and Oakley Capital Investments) and fund of funds (HarbourVest Global Private Equity, Pantheon International, ICG Enterprise Trust, Standard Life Private Equity and BMO Private Equity). While we included Apax Global Alpha, we note that in addition to private equity, it had a relatively high exposure to private debt investments (c 24% of its portfolio at end-September 2021) which have a lower expected return than private equity investments.
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Exhibit 2: HGT’s performance to 30 September 2021 |
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Price, NAV and index total return performance, five years rebased |
Price, NAV and index total return performance (%) |
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Source: Refinitiv, Edison Investment Research. Note: Three-, five- and 10-year performance figures annualised. |
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Exhibit 3: Selected peer group at 10 December 2021*
% unless stated |
Market cap £m |
NAV TR |
NAV TR |
NAV TR |
NAV TR |
Ongoing |
Perf. |
Discount |
Net |
Dividend |
HgCapital Trust |
1,892.4 |
40.4 |
113.0 |
193.0 |
369.4 |
1.6 |
Yes |
1.0 |
100 |
1.2 |
HarbourVest Global Priv Equity |
2,188.2 |
53.7 |
91.0 |
147.3 |
297.3 |
1.3 |
Yes |
(15.2) |
100 |
0.0 |
Pantheon International |
1,808.5 |
31.7 |
54.5 |
101.1 |
242.5 |
1.2 |
Yes |
(15.0) |
100 |
0.0 |
Apax Global Alpha |
1,114.8 |
37.6 |
76.0 |
96.0 |
N/A |
1.5 |
Yes |
(12.4) |
100 |
5.0 |
ICG Enterprise Trust |
871.5 |
37.5 |
57.2 |
111.3 |
213.3 |
1.5 |
Yes |
(16.5) |
100 |
2.0 |
NB Private Equity Partners |
846.9 |
60.6 |
72.5 |
121.8 |
335.4 |
2.2 |
Yes |
(18.5) |
108 |
2.9 |
Standard Life Private Equity |
827.1 |
28.5 |
61.8 |
125.9 |
203.4 |
1.1 |
No |
(11.9) |
100 |
2.5 |
Princess Private Equity |
825.8 |
19.6 |
50.4 |
93.1 |
193.1 |
1.8 |
Yes |
(11.1) |
100 |
4.5 |
Altamir |
743.3 |
18.5 |
75.9 |
104.0 |
267.4 |
3.2 |
No |
(28.5) |
100 |
4.6 |
Oakley Capital Investments |
667.1 |
25.6 |
77.0 |
117.4 |
159.7 |
2.5 |
Yes |
(16.1) |
100 |
1.2 |
BMO Private Equity Trust |
359.0 |
57.1 |
79.0 |
119.3 |
247.0 |
1.3 |
Yes |
(12.1) |
112 |
3.6 |
Simple average (excl. HG Capital) |
782.0 |
30.6 |
67.5 |
112.4 |
231.8 |
2.1 |
N/A |
(17.2) |
102 |
3.1 |
HGT rank in peer group |
2 |
3 |
1 |
1 |
1 |
5 |
N/A |
1 |
2 |
8 |
Source: Morningstar, Edison Investment Research. Note: TR = total return. Net gearing is total assets less cash and equivalents as a percentage of net assets (100 = ungeared). *12-month performance based on end-September 2021 or earlier latest available ex-par NAV: HGT, HarbourVest Global Private Equity, Pantheon International, Apax Global Alpha, NB Private Equity Partners, Standard Life Private Equity, Princess Private Equity, Altamir, BMO Private Equity Trust – end-September 2021; ICG Enterprise Trust – end-July 2021; Oakley Capital Investments – end-June 2021.
HGT is currently trading broadly in line with its NAV, which is consistent with its historical trading (the average discount to NAV was c 2% over a period of three years to 10 December 2021). This compares with its peers’ double-digit discounts to NAV, which are more common levels for listed PE investment companies. We believe the fact that HGT is trading close to NAV has been linked to its focus on the resilient software and services sector coupled with its strong track record. In the past, HGT’s stock has only occasionally moved into double-digit discount territory, which has usually coincided with major UK stock market corrections, including the March 2020 market crash triggered by the COVID-19 pandemic, following which, however, the discount to NAV closed relatively quickly.
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Exhibit 4: Share price discount to NAV over five years (%) |
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Source: Refinitiv, Edison Investment Research |
Another year of robust transaction activity
HGT completed investments with a total volume of c £277m in 9M21 (or c 21% of the opening NAV) versus £403m in the record-high 2020 (c 39% of the opening NAV), including c £223m deployed in new companies and c £52 in existing portfolio holdings. Post end-Q321, the company announced investments with a total volume of c £119m, which we present in Exhibit 5 along with its major investments completed in Q321 (c £112m in total).
Exhibit 5: HGT’s investments in Q321 and post quarter end
Completion of transaction |
Company |
Investment type |
Amount invested on behalf of HGT** |
Business profile |
Q321 |
insightsoftware |
New |
54.6 (7.1) |
Global provider of enterprise software solutions for the ‘office of the CFO’ |
Q321 |
Managed Markets Insight & Technology |
New |
18.5 |
Provider of a platform, insights and consulting services to move therapies from pipeline to patients |
Q321 |
Riskalyze |
New |
15.9 (6.8) |
Risk-centric wealth management platform serving financial advisors, enterprises and asset managers |
Q321 |
Sovos |
Follow-on |
10.4 |
Global provider of tax compliance software solutions |
Q321 |
Litera |
Follow-on |
5.0 |
Provider of innovative technology solutions to legal organisations |
Q321 |
Visma |
Follow-on |
4.6 |
Provider of business-critical software to private and public companies in Europe |
Q321 |
Gossler, Gobert & Wolters Gruppe |
Follow-on |
2.0 |
Property & casualty focused insurance broker principally serving SMEs in the DACH region |
N/A* |
HHAeXchange |
New |
24.0 |
Software-as-a-service platform that improves patient outcomes, drives operational efficiency and increases compliance across the homecare ecosystem |
N/A* |
Serrala |
New |
24.0 |
Global financial automation and B2B payments software company |
N/A* |
Litera |
Follow-on |
28.0 |
Provider of innovative technology solutions to legal organisations |
N/A* |
BrightPay/Relate Software |
Follow-on |
6.6 |
Software company serving payroll and accounting bureaus and SMEs across the Republic of Ireland and the United Kingdom |
N/A* |
Revalize |
New |
18.7 |
Provider of sector-specific revenue operations software for manufacturers, their distributors and their specifiers |
N/A* |
Pirum Systems |
New |
9.4 |
Provider of post-trade automation and collateral management technology for the global securities finance industry |
N/A* |
Fonds Finanz |
New |
8.0 |
Tech-enabled financial intermediary pool in the German insurance sector |
Source: HgCapital Trust. Note: *Transactions signed and in closing. **Amount of co-investment (included in the total amount invested) in brackets.
Realisations reached a solid c £169m in 9M21 (or c 13% of the opening NAV), compared with the record-high £364m in 2020 (c 35%). This included c £87m in Q321 alone, most notably from the full exits from Allocate (£50.5m) and Achilles (£24m) as well as the partial exit from Evaluate (£11.5m). These transactions generated strong uplifts to end-December 2020 valuations of 48%, 33% and 94%, respectively. Post period end, HGT announced a £35m realisation from BrightPay at a 77% uplift to its end-December 2020 valuation. The average uplift on the major realisations in 2021 to date was a very healthy 47% (Exhibit 6), broadly in line with the 50% in FY20 and ahead of the still robust 27% over the past 10 years based on 56 realisations, according to the manager. HGT achieved a robust 2.9x multiple of cost and 34% gross internal rate of return on the realisations in 2021 ytd.
We note that HGT’s investment and realisation volume in 2021 so far include two transactions that should be considered partial roll-overs: a c £21m exit from TeamSystem (by Hg Genesis 6 Fund) and a c £35m exit from BrightPay (by Transition Capital), coupled with a c £14m re-investment in the former (through Hg Genesis 8 Fund) and a c £7m re-investment in the latter (through Hg Mercury 3 Fund).
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Exhibit 6: Uplifts to book value on major exits in 2021 so far |
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Source: HgCapital. Note: Uplifts from 2021 deals are versus book value at end-2020. |
The manager expects further investment and liquidity events over the next 12 months. In a typical 12-month period, it makes between eight and 16 new platform investments and seeks to deliver a similar number of liquidity events each year, including sales or partial sales of portfolio companies and refinancings (HGT has completed or announced 22 investments and nine realisations in 2021 to date). Hg will maintain its cautious and selective approach and focus on capitalising on situations where it has a specific angle and many years of knowledge of the business and its end-market, as well as strong relationships with founders and management teams. Bolt-ons and strategic M&A within the portfolio remain a key focus.
Strong liquidity position assisted by tap equity issues
HGT’s coverage ratio (calculated as the sum of liquid resources and undrawn bank facility divided by unfunded commitments) was a healthy c 85% on 10 December 2021, compared to 60% at end-FY20 and c 55% on average between FY16 and FY20. Outstanding commitments stood at £410m and are likely to be invested over the next four to five years. In 2021, HGT committed to invest c US$125m in junior debt financings across Hg portfolio companies over the next three years. The manager highlights that these investments have an attractive risk and return profile and are an effective means to manage liquidity on HGT’s balance sheet. Liquid resources (adjusted for all announced transactions and equity raised via tap issuance) stood at £303m as at 10 December 2021 and c £45m of its £200m revolving credit facility remained undrawn upon the release of the Q321 report on 15 November 2021. HGT’s liquidity position has been additionally supported with tap equity issues, which totalled c £100m in 9M21 (vs £25m in total in 2020) and c £26m between end-September 2021 and 13 December 2021, according to our calculations. We note that a new block listing facility of c 21m shares (vs c 446m shares outstanding on 15 November 2021) was admitted to trading on 16 November 2021, which the manager plans to use to satisfy investor demand that cannot otherwise be met from the secondary market.
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Exhibit 7: HGT’s historical coverage ratio |
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Source: HgCapital Trust, Edison Investment Research. Note: The last column shows outstanding commitments, and liquid resources on 10 December 2021 (including all transactions announced to this date, and equity raised via tap issuance) and undrawn credit facility amount upon the release of its Q321 report on 15 November 2021. |
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Research: TMT
TXT e-solutions reported 15% year-on-year organic revenue growth for Q321, further boosted by contributions from recent acquisitions HSPI (+21%) and TeraTron (+11%). EBITDA increased 49% over the same period with a small increase in margin to 13.4%. While the pandemic has reduced demand for certain products and services, TXT has managed to expand into other areas organically and via acquisition to win new business (eg sustainable transport, defence, fintech). Diversification, combined with early signs of recovery from TXT’s civil aviation and financial services customers, positions the company well to grow this year and next.