London, UK, 4 August 2023
Edison issues review on HG Capital Trust (HGT)
HgCapital Trust (HGT) continues to operate against the backdrop of a tougher macroeconomic environment, muted M&A markets and higher interest rates. Nevertheless, it delivered a 12-month NAV TR to end-March 2023 of 10.3%, which supports its longer-term outperformance of listed PE peers and major public indices. While Hg (its investment manager) expects some pressure on sales to new customers across HGT's portfolio, it sees several other organic growth drivers, including cross- and up-sell. Last 12 month (LTM) revenue and EBITDA growth to end-March 2023 remained high across its top 20 holdings at 30% and 27%, respectively.
Despite the tougher external environment, SaaS companies are expected to continue generating healthy top-line growth and increasing profitability over the next two years, with current Refinitiv consensus implying revenue and EBITDA growth at c 10-15% pa. HGT is a quality play in the sector, underpinned by the defensive growth profile of its holdings, Hg's sector expertise, in-house value creation team and buy-and-build strategy. HGT has historically delivered revenue and EBITDA growth of 20-30% pa at a margin above 25% (FY22: 29%) across its top 20 holdings. Therefore, it fulfils the 'Rule of 40', which warrants a valuation premium versus the broader private IT sector. The shares now trade at a c 17% discount to end-March 2023 NAV.
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