Following a solid H120, HgCapital Trust (HGT) announced several portfolio transactions representing a considerable uplift to the carrying value at end March 2020 and translating into a c 12.0% ytd NAV total return (TR) to end August. On completion of these deals, HGT’s cash resources will improve significantly to £314m from £123m in early July, while its unfunded commitments will decline to £814m. Consequently, HGT’s commitment coverage ratio will improve markedly to c 39% vs 13% in early July.
In August 2020, HGT announced further investments in Visma and Sovos through the recently launched Hg Saturn 2 fund (investing £17.1m and £40.8m, respectively), together with other institutional clients of Hg (its investment manager). At the same time, however, HGT sold part of its holdings in both companies held through Hg Genesis 7 (a mid-market buyout fund at the realisation stage), reducing its overall exposure. HGT also announced a c £11m investment in F24 (active in emergency notification, crisis and incident management and critical communications), the sale of Citation Group to KKR (with cash proceeds of £25.8m) and an £8.1m investment in Evaluate (we assume through Hg Mercury 2), coupled with a full exit from this company by Hg Mercury 1. Overall, these transactions (which may be considered partial rollovers) represent new investments of £90m and realisations (net of carried interest) of over £250m.
All four realisations will be carried out above the value reflected in HGT’s NAV reported at end March 2020. Visma’s new valuation (implying a total enterprise value of US$12.2bn) means HGT’s stake is now valued at £268.8m, with an uplift of 35% to the last carrying value. Similarly, the partial exit from Sovos translates into a 58% uplift, while the Citation Group and Evaluate exits (alongside other investors in Hg funds) were completed at 16% and 40% above the end March 2020 valuations, respectively. This suggests HGT has been able to exploit the recent increase in market valuations, in particular in the case of SaaS businesses, discussed in our recent review note. HGT’s shares now trade at a c 2.6% discount to its pro forma NAV as at end August 2020 (which, except for the recent transactions, is based on valuations at end June 2020).
HGT estimates that following all the transactions and corporate actions to date (including the dividend of 2.0p per share payable in October), its liquid resources will improve to £314m (compared to £123m in early July, when we last published on HGT). Simultaneously, its unfunded commitments will decrease to £814m, with a coverage ratio of c 39%, according to our estimates. While this is still slightly below its 2015–19 average of 48%, it represents an improvement from 13% in early July and seems quite a safe level, especially given the Genesis 9 and Mercury 3 commitments (making up around half of HGT’s overall unfunded commitments) will not be drawn this year, according to the company. Moreover, the company is negotiating a new £200m debt facility (its existing £80m facility is fully drawn).