HgT — Preliminary H124 NAV total return of 5.6%

HgT (LSE: HGT)

Last close As at 26/07/2024

GBP5.29

18.00 (3.52%)

Market capitalisation

GBP2,339m

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Research: Investment Companies

HgT — Preliminary H124 NAV total return of 5.6%

HgT has published its preliminary unaudited H124 trading update, reporting a 5.6% NAV total return (TR) in H124 (of which 3.0% was in Q124). HgT’s NAV TR remains primarily driven by the solid last 12-month top-line and EBITDA momentum, which stood at 20% and 25% to end-June 2024 across its top 20 companies (making up 78% of its portfolio value), compared to 24% and 29% at end-March 2024, respectively. Despite the still modest exit activity across the global private equity market, HgT collected £347m (or 15% of opening NAV) in proceeds from exits and refinancings in H124. Its discount to NAV closed recently, translating into a year to date share price TR of more than 20%.

Milosz Papst

Written by

Milosz Papst

Director, Financials

Investment Companies

HgT

Preliminary H124 NAV total return of 5.6%

Investment trusts/TMT
Private equity funds

29 July 2024

Price

529.0p

Market cap

£2,421m

NAV*

£2,398m

NAV per share*

524.0p

Premium to NAV

1.0%

*Preliminary at end-June 2024.

Yield

1.2%

Shares in issue

457.7m

Code/ISIN

HGT/GB00BJ0LT190

Primary exchange

LSE

AIC sector

Private equity

52-week high/low

529.0p

357.5p

524.0p

493.7p

Gearing

Net gearing at end-H124

0.0%

Fund objective

HgT’s investment objective is to provide shareholders with consistent long-term returns in excess of the UK All-Share Index by investing predominantly in unquoted companies where value can be created through strategic and operational change.

Bull points

Focus on resilient B2B software and services companies with broad client bases.

Portfolio companies continue to deliver both solid top- and bottom-line performance.

Experienced investment team with a strong, long-term track record.

Bear points

Investor rotation away from tech could resume in the event of increasing risk aversion.

The impact of a worsening macroeconomic environment on SMEs may result in reduced net client additions across HgT’s portfolio.

High net leverage of portfolio companies but supported by high share of recurring revenues, strong earnings growth and high cash generation.

Analysts

Milosz Papst

+44 (0) 20 3077 5720

Katherine Thomson

+44 (0) 20 3077 5720

HgT is a research client of Edison Investment Research Limited

HgT has published its preliminary unaudited H124 trading update, reporting a 5.6% NAV total return (TR) in H124 (of which 3.0% was in Q124). HgT’s NAV TR remains primarily driven by the solid last 12-month top-line and EBITDA momentum, which stood at 20% and 25% to end-June 2024 across its top 20 companies (making up 78% of its portfolio value), compared to 24% and 29% at end-March 2024, respectively. Despite the still modest exit activity across the global private equity market, HgT collected £347m (or 15% of opening NAV) in proceeds from exits and refinancings in H124. Its discount to NAV closed recently, translating into a year to date share price TR of more than 20%.

HgT’s realisations in H124 included three exits agreed in 2023, which were followed by a reinvestment in the same business: the exit from IRIS, which valued HgT’s holding at £99.8m (resulting in net proceeds of £42.1m); the £82m exit from GGW Group (£38m net of subsequent reinvestment); and the sale of Visma’s stake by the Genesis 7 fund (accounting for the subsequent reinvestment, the deal was a net investment of £83.5m into Visma by HgT). On top of this, HgT received £78.5m from realisations in Q124, mostly from the full exit of Argus Media (signed in 2024), as well as partial exits of MeinAuto and TeamSystem. Hg (HgT’s investment manager) agreed a further two full exits from F24 and its remaining stake in TeamSystem, and a partial exit of team.blue, from which HgT expects to generate c £71m of proceeds. The four full and partial exits signed in 2024 were agreed at an average 13% uplift to their previous carrying values (as at end-September 2023 for Argus Media, end-March 2024 for the post-H124 deals), reinforcing HgT’s portfolio valuations.

HgT investments in H124 amounted to £310m and included the above-mentioned reinvestments in Visma, IRIS and GGW Group, as well as new investments in Cube (active in the Automated Regulatory Intelligence and Regulatory Change Management technology, with HgT investing £9.7m), CINC Systems (a cloud-based software company serving the community association management sector, £19.2m) and Induver (an independent corporate insurance broker in Belgium which merged with its competitor Clover, £6.7m). Post reporting date, HgT made £108m of new investments into Focus Group (a provider of essential business technology to SMEs, including IT, telecom and connectivity services) and AuditBoard (a connected risk platform for audit, risk, compliance and ESG management).

Accounting for all the transactions announced to date, HgT’s pro-forma available liquid resources (including the £308m undrawn part of its £375m credit facility) stood at £508m, which represents a robust 70% coverage of its outstanding commitments.

HgT will report its interim results to end-June 2024 on 16 September 2024.

General disclaimer and copyright

This report has been commissioned by HgT and prepared and issued by Edison, in consideration of a fee payable by HgT.Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by HgT and prepared and issued by Edison, in consideration of a fee payable by HgT.Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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