HgCapital Trust net asset value slips in first quarter

(Sharecast News) - HgCapital Trust reported a decline in net asset value for the first quarter on Thursday, as strong trading across its technology and services portfolio was outweighed by a contraction in valuation multiples amid volatility in public software markets.

The FTSE 250 private equity investment company said NAV per share total return fell 5.4% in the three months ended 31 March, leaving NAV per share at £5.28 and net assets at £2.4bn.

It said a material contraction in valuation multiples reduced the value of the portfolio by 9%, partially offset by a 5% positive contribution from trading.

The weighted average enterprise value to last-12-month EBITDA multiple fell to 24.0 times at the end of March, from 25.2 times at the start of 2026 and 26.1 times at the start of 2025.

The share price total return fell 22.9% over the period, with the shares ending March at £3.88 and market capitalisation at £1.8bn.

Chairman Jim Strang said key operating metrics across the portfolio had continued to show "encouraging progress" despite the challenging macroeconomic backdrop and volatility in public software markets.

"Specifically, companies reported LTM sales growth of 16% and EBITDA growth of 19% respectively, while EBITDA margins were 34%," he 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."

HgT said the overall portfolio delivered last-12-month revenue growth of 16% and EBITDA growth of 19%, with margins of 34%, broadly in line with prior-period figures.

Strang said the software sector sell-off had been "largely indiscriminate" and driven substantially by concerns about the disruptive threat of artificial intelligence to existing businesses.

"Hg targets a range of technology related investments according to a disciplined investment model focused on vertical software companies with very specific characteristics - notably those with proprietary datasets, where outputs must be 100% accurate and where deep, embedded customer and domain knowledge are defining factors," he said.

"While all technology assets will be impacted by the adoption of AI, the Hg portfolio companies are well placed to see their specific value propositions enhanced by AI integration rather than to be replaced altogether."

The company said investments of £42m were made during the quarter, while realisation proceeds totalled £91m.

Realisations included Intelerad at an uplift of more than 60% to book value and a partial exit from Septeo, where HgT converted its fund exposure into a fee-free co-investment of a similar amount.

In March, HgT also announced the exit of Geomatikk, expected to complete in the second quarter, at a small uplift to its December carrying value.

Strang said recent exits to strategic buyers at premiums to carrying value demonstrated both the appropriateness of Hg's valuation approach and the positioning of the portfolio to benefit from AI-driven change across the software industry.

"Nonetheless, over the course of the period, the positive effect of continued strong trading performance - +5% contribution - was offset by a material contraction in the valuation multiples of comparable companies that make up the peer valuation baskets according to the HgT valuation policy," he said.

HgT said pro-forma available liquid resources stood at £297m, or 12% of NAV, including a £375m credit facility of which £259m remained undrawn.

Outstanding commitments to Hg funds totalled £2.1bn, equivalent to 88% of NAV, of which £1.6bn related to recent commitments to Hg's 2025 and 2026 vintage funds, expected to be called over the next five to six years.

The company initiated a share buyback programme on 6 February, with £19m repurchased to date.

HgT said its 10-year share price total return was 15.4% per year, outperforming the FTSE All-Share Index by 6.7 percentage points per year.

It said a £1,000 investment made 20 years ago, with dividends reinvested, would have been worth £9,254 at the end of March, compared with £3,599 for an equivalent investment in the FTSE All-Share Index.

"At this time of elevated risks and uncertainty, the Board remains focussed on four major areas," Strang said.

"These are monitoring the portfolio trading performance, the capital structures of the portfolio companies, ensuring the Hg deal machine continues to operate effectively and finally, and most importantly of all, taking all necessary steps to support the long-term success of HgT."

At 0947 BST, shares in HgCapital Trust were down 0.22% at 373.16p.

Reporting by Josh White for Sharecast.com.

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