Last close As at 05/08/2026
GBP3.92
▲ 2.00 (0.51%)
Market capitalisation
GBP1,776m
Research: Investment Companies
HgT’s final FY25 results confirmed the strong underlying last-12-month (LTM) growth in revenue and EBITDA across its portfolio, with final figures at 17% and 19%, respectively (of which 11% and 17% was organic, respectively). This was partly offset by lower comparable multiples and higher net debt across the portfolio used to finance bolt-on M&A, leading to a 4.0% NAV total return (TR) in FY25. HgT’s portfolio companies maintain a healthy average EBITDA margin of 33%, which would be even higher if not for the extensive growth investments into AI capabilities, supported by Hg’s (HgT’s investment manager) well-staffed, dedicated AI product incubator (Hg Catalyst). There are more than 1,600 generative AI (GenAI) projects live across HgT’s portfolio, and over 40 agentic products and features have already been launched. Despite the sustained earnings momentum and encouraging initial results of AI adoption, HgT’s shares have been caught up in the recent indiscriminate sell-off of software stocks and now trade at a 27% discount to NAV (vs 10-year average of 8%), which implies an average EV to next-12-months EBITDA multiple of c 15x across HgT’s portfolio, according to Hg.
In our previous update note, we highlighted that, in order to succeed, HgT’s portfolio companies have to successfully build innovative AI-driven ‘products of action’ on top of the base layer and wrap them into appropriate controls. Because SME customers prioritise accuracy, predictability and auditability of the software they use, they will favour AI-augmented products from existing trusted partners (such as HgT’s portfolio companies) underpinned by extensive domain expertise over cheaper but more experimental AI-driven solutions. Hg believes that this will allow successful AI-enabled software companies to expand beyond the $1tn market for software and into the $60tn market for global labour.
However, public markets have recently focused on the downside risks of AI disruption
in software, wiping out the software sector’s 50% premium to the LTM
P/E multiple of the broader market. Hg’s head of research, David Toms, believes that
the market’s latest reassessment of the quality of software companies is incorrect,
and that there is no reason why current lower software valuations should persist if
the sector continues to deliver growth above the broader market. HgT’s historical
NAV TR (14.1% and 17.0% per year over five and 10 years, respectively) has been mostly
driven by earnings growth, with no meaningful contribution from the change in multiples
over the last two decades.
However, HgT’s NAV is likely to be negatively affected by the contraction in comparable public market multiples in Q126, as Hg stated earlier that roughly 20–40% of public comparable movements affect the multiples used for valuing HgT’s portfolio (organic earnings growth typically adds c 3% per quarter to valuations). As a broad reference point, we calculate that the recent decline in the median one-year forward EV/EBITDA multiple was c 20% across the broader listed US SaaS universe. Hg highlighted that it had seen a similar divergence between its portfolio and public multiples during the monetary tightening in 2022, during which HgT continued to realise investments at a premium to both public markets and its own carrying values.
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Even if public markets are eventually proved wrong in their broad-based de-rating of software stocks, the negative sentiment could weigh on Hg’s near-term exit, fund-raising and portfolio debt refinancing activity. However, several facts must be considered in this respect:
Hg’s activity in terms of bolt-on M&A has been more muted recently, as Hg prioritised in-house AI projects over acquiring external capabilities given the solid traction in terms of product development and good access to high-quality AI talent. Hg Catalyst focuses on defining narrow workflows with clear success metrics, fast release cycles and the reuse of best practices. While the standard length of the development cycle for more complex agentic AI products is now three to six months, it often allows for the deployment of incremental functionalities throughout the project development process (facilitated by its cloud SaaS setup).
The 2025 realisations of £215m represented 8.6% of opening NAV, below the 2022–25 average of 19%, which Hg believes is the result of its investment and realisation cycle. It expects a pick-up in exits, primarily trade sales and/or sponsor-to-sponsor transactions given the less favourable IPO market, in H226. Higher exit activity would further validate HgT’s portfolio valuations.
Following the commitments made to the latest vintages of Hg’s small-cap (Mercury) and mid-cap (Genesis) funds, HgT’s pro forma outstanding commitments at end-2025 reached £2.1bn. HgT’s total commitments compare with £374m available liquidity (including an undrawn credit facility of £322m) and translate into a commitment coverage ratio of around 18%, which may look low at first glance. That said, we note that Hg expects £1.9bn of commitments to be called gradually over four to five years and considers the remaining £0.2bn as unlikely to be called. Moreover, the recent new commitments are behind subscription lines at the level of the Hg funds, delaying first capital calls until 2026 (Saturn 4) and 2027 or 2028 (Genesis 11 and Mercury 5). This gives HgT more time to fund its commitments through portfolio realisations.
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Research: Consumer
PZ Cussons is demonstrating the benefits of sharper operational focus and improved execution. Its newly stated ambition is to deliver like-for-like revenue growth in the mid-single digits and high single-digit growth in earnings per share annually, a double-digit total return for shareholders given the 3.6p dividend. With the balance sheet now back to strength and a clear strategy for growth, investor confidence has responded positively, with the share price reaching its highest level in 16 months. We believe sentiment has started to turn.