HgCapital Trust’s (HGT) 12-month NAV TR to end-March 2020 was a solid 13.8% despite the COVID-19 market downturn in March 2020 (ytd NAV performance since end-December 2019 was a 6.2% decline). The coverage ratio reached a historically low level (13% vs three-year average of 53%) after HGT notably increased its investment activity and commitments in Q120. However, a significant part of these new commitments will not be drawn in the near term. The board continues to review its future funding arrangements and may also opt out of a new investment without penalty across all funds. HGT’s portfolio focus is on the resilient software and technology sector and the manager expects a limited direct earnings impact on its portfolio from the COVID-19 pandemic.
HGT’s portfolio of software and services technology companies offers exposure to relatively resilient sectors in the current macro uncertainty. Its portfolio holdings largely provide mission-critical software, and are mature businesses, with low exposure to industries most affected by the COVID-19 pandemic.We believe that HGT’s portfolio valuation post March 2020 may be supported by the rebound in software and services equities.
- Investment manager’s extensive experience (nearly 30 years).
- Focus on software and services companies, where HGT has a welldocumented track record.
- Solid top- and bottom-line performance of portfolio companies.
- Value-add initiatives executed by an experienced in-house team.
HGT is trading broadly in line with its NAV, which is based on end-March valuations and thus captures the majority of the decline in market multiples. HGT highlights that it may need to reconsider its new dividend guidance released in April 2020 of at least 4.8p per share per year.