HgCapital Trust (HGT), the £1.7bn private equity fund, says the “indiscriminate” sell-off of software stocks on fears of disruption by artificial intelligence knocked 5.4% off its net asset value (NAV) in the first quarter. Although shareholders knew their shares slumped nearly 23% to in the three months to 31 March, this is the first time the company has shown the underlying impact of the stock market’s response to the enhancements made by Anthropic to its Claude chatbot in February. A “material” contraction in the valuation multiples of the listed software companies fund manager Hg uses as a benchmark to its investments in business and accounting software providers cut the portfolio by 9%. This was partly offset by the strong performance of the portfolio companies which added 5% back to the NAV which stood at 528p at 31 March. That left the shares at 373.5p on a 29% discount compared to a 13.5% 12-month average. HGT said the weighted average multiple applied to last 12-month profits had fallen from 26.1 to 24 times. Portfolio companies had continued to grow annual revenues and earnings by 16% and 19% on stable margins 34%. Disposals in the first quarter confirmed the trust’s NAV with Intelerad sold at a premium of more than 60% to book value and Geomatikk sold at a small uplift. Chair Jim Strang said: “The portfolio continues to grow significantly faster than typical public companies and to generate significant free cash, a trend that has been in place for some time.”
James Carthew, head of investment company research at QuotedData, said: “HgCapital’s chairman highlights the problem that the trust faces. Values of comparable listed stocks fell by 25% over Q1 and its share price fell by 22.9%, but it is arguing that valuations of its companies only fell by 9%. Investors are going to take a lot of convincing of the validity of the NAV. If it can continue to deliver exits at or above NAV, that should help. So, too, would more quarters of good trading figures coming from investee companies. However, I think the jury will be out for a long while yet.”
ICG Enterprise (ICGT), the £845m private equity fund run by Intermediate Capital Group (ICG), managed to extract a 17.3% total return for shareholders despite a “disappointing” 0.5% net return on assets in the year to 31 January. The company’s £28m of share buybacks (3% of share capital), a 13th consecutive annual rise of 8% in dividends to 39p per share and the sale of 48 investments at an average uplift of 11% helped narrow the share price discount to net asset value (NAV) from 35% to 24% and bolstered shareholder returns, said chair Jane Tufnell. This year’s uncertainties stemming from the rise in artificial intelligence and the war in the Middle East have seen the shares fall 7% in the past three months with the discount returning to around 34%. In the financial year, the £1.2bn portfolio saw its underlying investment return fall to 4.8% compared to the five-year average of 11.8%. An historic rise in the pound against the dollar – in which half its assets are based – knocked 3.6% off this to leave the portfolio’s sterling return at 1.2% with fees and costs reducing the NAV return to 0.5%. During the year ICG manager Oliver Gardey oversaw £194m of new investments and committed a further £201m to new funds run by ICG and other private equity groups including Advent and Hg. At yesterday’s close, ICGT had delivered a total shareholder return over five years of 45% ahead of the 42% rise in the S&P Listed Private Equity index.
Bluefield Solar Income (BSIF) has borrowed £120m from NatWest and Santander banks to fund the construction of the four projects that received Gate 2, Phase 1 grid connection offers from the National Energy System Operator (NESO) in January. Michael Gibbons, chair of the £465m 11%-yielder put up for sale last November, said the debt financing had been provided on good terms with “significant interest” from other lenders that “highlighted the attractiveness of the solar sector.”
QuotedData’s James Carthew said: “I know we don’t have any information about a bid yet, but I’m increasingly reluctant to see Bluefield Solar depart the sector. This morning’s announcement serves to underline the depth of opportunity that the company has and – with the issues around cost disclosure and the pensions bill sorted – it is more easy to imagine that buyers come in for the equity just as lenders are prepared to provide debt financing.”
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