COVID-19 Update
Update by the Board of HgCapital Trust plc (HGT) and the Investment Manager (Hg) to Shareholders on the potential effects of COVID-19 on HgCapital Trust
As the COVID-19 pandemic continues to unfold across the world, the Board of HGT and the investment manager, Hg would like to update you on what they believe may be the potential impacts for HgCapital Trust plc and the mitigations that have been made.
Hg invests in companies that focus on critical activities such as delivering legal, health and safety advice to many thousands of businesses globally, helping these companies to pay taxes and payroll, deliver healthcare services, audit and manage supply chains and provide many other services. These types of company and their business models are potentially less likely to be disrupted by the pandemic than the broader economy. Nonetheless, with a global recession now the backdrop for 2020, it is important to note the potential challenges ahead, recognising the importance of transparent communication to which the Board of HGT and Hg have always been committed.
Given the critical nature of software and services that our portfolio provides to the wider business world, Hg believes that there will be fewer direct impacts from the pandemic than you might see in a more generalist portfolio. Nevertheless, whilst Hg anticipates that the portfolio in aggregate will continue to deliver growth over the long-term, the Manager can see a scenario where a handful of the Hg investments potentially deliver year-on-year declines in performance and Hg are managing this appropriately.
Public market valuations overall have fallen sharply in recent weeks, with valuation multiples for the S&P500 returning to 2015 levels in EV:EBITDA terms. However, the S&P500 Software and Services index, which is more closely related to our portfolio, has returned only to 2017 valuation multiples. . Strong EBITDA growth across the Software and Services sector has tempered that valuation decline and thus asset values are similar to early 2019 levels. In such volatile markets, and with unpredictable trading results for many businesses, market valuation multiples need to be treated with caution. Hg will continue to stress test the portfolio, in order to identify any issues as early as possible.
In summary, Hg believes that there are likely to be short-term declines in the overall valuation of our portfolio and thus in the reported NAV of HGT. However, the long-term nature of listed private equity investment, the types of business that Hg invests in and the scale of the structural opportunities that these can deliver, will continue to drive long-term growth.
As manager, Hg has robust business continuity procedures allowing it to continue to provide active management of the portfolio and full support for the management teams of our portfolio companies, while working remotely. Hg's proprietary HgHive© online community now has a COVID-19 channel through which our portfolio companies can share best practice in dealing with the effects of the pandemic.
Hg will maintain a focus on the best course of action for society, for their employees and for the staff and businesses in which they invest, and continue to review the risk profile as this fast-moving situation develops.
Roger Mountford, Chairman, HgCapital Trust plc, said: "The Board remains confident in Hg's management of the portfolio and the ability of HGT as a long-term investment to continue to perform across all cycles. We have always been committed to transparent reporting to all our investors and will continue to monitor this situation and provide further updates whenever required".
HGT reported its 2019 full year results on 9 March 2020 and will provide a full revaluation of the portfolio up to 31 March on 11 May 2020.
Please do not hesitate to contact Laura Dixon (laura.dixon@hgcapital.com) if you have any questions.
For further details:
Hg
Laura Dixon +44 (0)20 7089 7888
Brunswick
Alice Gibb and Sam Chiene +44 (0)207 404 5959
About HgCapital Trust plc
HgCapital Trust plc, whose shares are listed on the London Stock Exchange (ticker: HGT.L), gives investors exposure through a liquid vehicle to a portfolio of high-growth private companies in the software and services sector. The selection of new investments and creation of value in these businesses are managed by Hg, an experienced and well-resourced private equity firm with a long-term track record of delivering superior risk-adjusted returns for its investors. For further details, please see www.hgcapitaltrust.com .
The contents of the Hg and HgCapital Trust's websites are not incorporated into, and do not form part of, this announcement.
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