Edison issues update on HgCapital Trust (HGT)

London, UK, 10 June 2021

Edison issues update on HgCapital Trust (HGT)

HgCapital Trust (HGT) posted a strong NAV TR of 8.4% in Q121, driven primarily by double-digit earnings growth across the portfolio (LTM EBITDA for top 20 holdings up 30% y-o-y). After record-high transaction volumes in FY20 (investments at £403m and realisations at £364m), HGT has maintained a high transaction activity to date in 2021 (£147m and £112m, respectively). Its coverage ratio was a healthy 69% at 12 May 2021, supported by tap equity issues, which totalled c £50m to 8 June 2021 (versus £25m in FY20), and a £200m credit facility agreed in Q420, which remains undrawn.

HGT focuses on the software and services sector, which has been one of the most sought-after industries (S&P 500 Software and Services index up 52% over the 12 months to end-March 2021). This has resulted in overall demanding public valuations. At the same time, HGT's shares are trading broadly in line with NAV (vs a c 20% average discount for PE peers, although in line with HGT's historical trading). However, we note that HGT's recent NAV TR has been mostly driven by earnings momentum across portfolio companies rather than public market multiples. Moreover, the company continues to report healthy uplifts to last carrying value on exits, suggesting a relatively conservative portfolio valuation policy. The broader software and services market remains supportive for HGT's portfolio, with the S&P 500 Software and Services Index (which historically has been a good valuation proxy for Hg's portfolio) up 7% since end-March 2021 to 8 June 2021.

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