Hg Capital reports that, at 30 June 2016, the Trust’s NAV per share reached a new high of £15.48 per share, after the payment of a dividend in respect of 2015 of 40 pence per share, reflecting growth during the half year (on a total return basis) of 12.1%. The total NAV of the Trust at 30 June reached £578 million, an increase of £48 million over the year-end.
They say this appreciation reflected further strong growth in sales and earnings in the majority of the portfolio. Over the preceding twelve months the top 20 companies, that make up 83% of the portfolio, saw sales growth of 12%, a little ahead of six months earlier, and EBITDA growth of 22%, which was substantially up on the 12% growth Hg capital reported at the year-end. This growth in profits was the most significant source of value creation, adding some £50 million, or 134 pence per share, to NAV.
Uncertainty surrounding the referendum on UK membership of the EU led to a fall in the value of sterling against all the currencies in which the Trust is invested; this contributed £36 million to the growth of NAV, reversing foreign exchange losses that the Trust had suffered during a period of strength in sterling over the previous three years. The ratings used to value the Trust’s holdings were virtually unchanged compared with the year-end.
Almost all the companies in the portfolio achieved growth in value, with continuing strong appreciation in Visma, IRIS, Zenith and P&I, and in their newly acquired investment in Sovos Compliance. Small provisions were needed against the value of Teufel and Atlas, but the Manager continues to work with the management of these businesses to protect and restore value.
The continuing strong progress in the value of the portfolio in the first half of 2016 has resulted in the Board making a further provision against the portfolio of £17.3 million for the Manager’s carried interest; this will only become payable once the Trust has been returned its invested capital and a preferred return of 8% p.a.
The Trust’s share price increased by 10.8% on a total return basis in the first half, closing at £11.95 on 30 June 2016, versus a 4.3% total return from the FTSE All-Share Index.
The Manager invested £74 million on behalf of the Trust into six new buyouts. The largest of these was the acquisition of Sovos Compliance, which produces software for tax compliance; they say this business is similar to many successful investments that they have made in companies that sell into the market for business-critical software applications, and it has already made strong progress under HgCapital’s ownership. They made other new investments in Kinapse, Citation, Trace One, Raet and STP (which are headquartered in the UK, France, Netherlands and Germany) and, since 30 June, HgCapital has made two new investments: Blick Rothenberg, which is based in London and, as the basis of the newly launched CogitalGroup, offers accounting and tax compliance services; and Mobyt, a provider of Application-to-Person SMS services, based in Italy.
In total, realisations of portfolio investments returned £71 million in cash back to the Trust. £47 million of this came from the realisations of TeamSystem and Casa Reha; the former proved to be an excellent investment, despite the headwinds it faced in the Italian economy, and they have retained a minority interest alongside a very experienced US private equity manager who has appointed members of the board of TeamSystem in addition to those who will continue to represent HgCapital. The balance of £24 million was received by the Trust, mostly as a result of distributions from three investments, two of which took advantage of their strong cash flow and attractive market conditions to refinance their borrowing at higher levels.
Since 30 June, the Manager has negotiated four further realisations. Chief among these was the sale of Relay Software, which achieved an excellent return and was the first realisation from the Mercury fund.
HGT : Hg Capital hits new highs aided by weak sterling