HgCapital Trust (HGT) serves as a listed vehicle providing access to the unquoted businesses managed by Hg, described as Europe’s largest investor in software & service businesses. HGT reported annual results this morning, covering the period to 28 February 2021.
Net assets close the financial year at closed to £1.3bn, with HGT noting that it extended its outperformance of the FTSE all-share index over one, three, five, ten and twenty-year periods. Total NAV returns for the year came to 24%, while the shares delivered 21%.
There was strong double-digit growth from the realised and unrealised portfolio:
- Revenue and EBITDA growth of 22% and 31% across the top 20 investments (83% of the portfolio) over the last twelve months.
- £364m of cash returned to HGT through realisations at uplifts to book value and refinancings.
- Valuation multiple (EV/EBITDA) of 22.1x and net debt to EBITDA ratio of 6.4x for the top 20 investments.
HGT noted that £403m was invested on its behalf into companies that Hg (the Manager) has known for many years and have demonstrated a track record of strong performance across market cycles.
New commitments were made to the Hg Saturn 2, Hg Genesis 9, and Hg Mercury 3 funds, totalling £750 million, with total outstanding commitments at 31 December 2020 of £647m (December 2019: £336m ). These will be deployed over the next three to four years.
Outlook commentary from HGT’s manager
- “The overall portfolio valuations were up over 25% for the year to 31 December 2020, returning over £4 billion of liquidity to Hg investors, including £364 million to HGT.
- As highlighted previously, COVID-19 has had a limited direct impact on the portfolio, given its defensive growth characteristics and we believe our investments will continue to benefit from ongoing trends in the digitalisation of business processes, across sectors and geographies.
- Against the backdrop of COVID-19, Hg’s portfolio has performed well and contributed positively to stakeholders’ livelihoods and retirements.
- The overall portfolio valuations were up over 25% for the year to 31 December 2020, returning over £4 billion of liquidity to Hg investors, including £364 million to HGT.
- As highlighted previously, COVID-19 has had a limited direct impact on the portfolio, given its defensive growth characteristics and we believe our investments will continue to benefit from ongoing trends in the digitalisation of business processes, across sectors and geographies.
- The Hg UK-based businesses have seen limited direct consequences from Brexit. Where regulatory complexity exists, software typically provides part of the solution and we are seeing several instances of this across the portfolio.
- The portfolio companies remain focused on selling business-critical and non-discretionary software and services to their underlying customers, typically with highly predictable business models and robust levels of recurring revenue.
- Across our funds, we expect investment activity in the next 12 months to continue – cautiously and with discipline – into businesses that we have tracked for many years.
- It has been a record year for realisations and further liquidity events are expected over the next twelve months.
- Bolt-ons and strategic M&A within the portfolio remain a key focus and across the current portfolio we have multiple live M&A situations.
- The Hg UK-based businesses have seen limited direct consequences from Brexit. Where regulatory complexity exists, software typically provides part of the solution and we are seeing several instances of this across the portfolio.
- The portfolio companies remain focused on selling business-critical and non-discretionary software and services to their underlying customers, typically with highly predictable business models and robust levels of recurring revenue.
- Across our funds, we expect investment activity in the next 12 months to continue – cautiously and with discipline – into businesses that we have tracked for many years.
- It has been a record year for realisations and further liquidity events are expected over the next twelve months.
- Bolt-ons and strategic M&A within the portfolio remain a key focus and across the current portfolio we have multiple live M&A situations.”
HGT: HgCapital Trust has a bumper year