London, UK, 17 May 2022
Edison issues review on HgCapital Trust (HGT)
HgCapital Trust's (HGT's) sector expertise has allowed it to consistently deliver strong performance, with a 10-year NAV total return (TR) at 17.6% per year (with 30.9% over the last 12 months), materially above the FTSE All-Share of 7.2% per year and LPX Europe NAV Index of 11.5% per year. Importantly, this has largely been driven by top-line and earnings growth (90% of returns on HGT's software and services holdings exited in 2001-2022 ytd) rather than multiple expansion, with five-year EBITDA growth to end-2021 across HGT's top 20 holdings of 28% per year. While HGT typically assumes a multiple contraction as part of its asset investment case, it has not actually seen much of this historically, due to its successful repositioning of portfolio companies, most notably through boosting recurring software-as-a-service (SaaS) revenues.
While HGT has been the top performer in UK-listed private equity (PE) over the 10 years to end-March 2022 (returning 406% vs PE peer average at 302%), we note its five-year NAV TR of 194% was ahead of the average 164% for UK-listed investment companies focused on public tech stocks (see below). HGT's five-year share price TR of 218% was also ahead of several tech exchange-traded funds (ETFs), which on average returned 177%. HGT's NAV TR over 10 years was less robust than these two peer groups and we believe partly due to the strong returns of 'big tech' such as FAANG stocks. While 'big tech' may find it difficult to sustain its results over the next decade, HGT's performance seems much more repeatable.
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