Edison Investment Research Limited
London, UK, 22 March 2024
Edison issues update on HgCapital Trust (HGT): Strong earnings growth and realisations in FY23 HgCapital Trust (HgT) posted an 11.1% NAV total return in FY23 (based on final audited numbers), which allowed it to sustain strong five- and 10-year returns of 20.4% and 18.4% pa, respectively. This has been mostly driven by robust earnings momentum across its portfolio. HgT defied the tough private equity exit environment, generating £345.9m of total realisation proceeds excluding carried interest in FY23. Moreover, it has a healthy commitment coverage ratio of 73% (based on current pro forma figures). The market has rewarded HgT through a narrowing discount to NAV, which now stands at c 6% (vs c 22% at end-2022).
Hg highlighted that sales and EBITDA growth across HgT's top 20 holdings was 25% and 30% in 2023, respectively. This included 19% organic EBITDA growth, ahead of the 12% posted by listed US software and services businesses, which Hg believes was due to higher emphasis on margin and the superior quality of HgT's portfolio compared to the average listed US software and service company. As this translated into an average margin of 31% across the top 20 holdings, HgT's portfolio continues to fulfil the 'Rule of 40' (see our previous note for details). Growth was further assisted by high 'buy-and-build' activity, which benefited earnings growth and supported returns through a considerable multiples arbitrage.
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1865689 22-March-2024
