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Introduction & Market Context
HgCapital Trust plc (LSE:HGT) presented its H1 2025 update on September 15, 2025, highlighting the resilience of its software-focused investment strategy in a challenging market environment. As a FTSE 250 investment company with a £2.4 billion market capitalization, HgT provides investors with listed access to Hg’s private software portfolio, which now encompasses 57 companies with a combined enterprise value of $180 billion.
The trust continues to benefit from structural trends in the software market, including demographic shifts driving software adoption as working-age populations decline across OECD countries, and the tendency of software companies to stay private longer, with median IPO valuations increasing from $100-150 million in the 1980s-1990s to over $1 billion in the 2020s.
H1 2025 Performance Highlights
HgT reported net assets of £2.5 billion as of June 2025, with NAV per share at 539.5p compared to a current share price of 515.0p, representing a 4.5% discount to NAV. The trust’s long-term performance continues to impress, with a 10-year share price CAGR of 19.2% and NAV per share growth of 17.6%, significantly outperforming the FTSE All-Share Index’s 6.8% over the same period.
As shown in the following chart of HgT’s long-term performance relative to the broader market:
For the first half of 2025, HgT’s portfolio valuation increased from £2,947 million in December 2024 to £3,096 million in June 2025. Strong trading performance contributed £230 million, but was partially offset by disposals (£164 million), increased net debt (£73 million), and adverse movements in ratings (£99 million) and foreign exchange (£50 million).
The following waterfall chart illustrates these components affecting portfolio valuation:
The trust’s portfolio continues to demonstrate robust fundamentals with what management describes as a "Rule of 45" profile: 12% organic revenue growth combined with a 33% EBITDA margin. Total revenue growth reached 19% (12% organic), while EBITDA grew 18% (15% organic).
Portfolio Composition and Strategy
HgT’s investment strategy focuses on business-critical B2B software and services with highly recurring revenues and low sensitivity to economic cycles. The portfolio spans multiple sub-sectors including Tax & Accounting, ERP & Payroll, Legal & Compliance, and Healthcare IT, with Hg having accumulated deep expertise in these areas over 10-21 years of repeated investments.
The top 10 holdings represent 59.8% of the portfolio, with Visma (12.0%), IFS (9.7%), and Access (8.0%) being the largest positions. Geographically, the portfolio is diversified across the UK (28%), Scandinavia (24%), North America (25%), DACH region (13%), and other European markets (10%).
The following slide provides a comprehensive overview of the portfolio composition:
HgT’s portfolio companies maintain robust balance sheets with over 70% equity in their capital structures. The average EV/EBITDA multiple stands at 25.7x with net debt/EBITDA at 7.4x, reflecting the premium valuations assigned to high-growth software businesses.
A key competitive advantage for HgT is its access to Europe’s fragmented software market, where over 50% of the top 40 software companies remain private, compared to less than 20% in the US. This fragmentation creates opportunities for consolidation and value creation.
The following chart illustrates this market structure difference between Europe and the US:
Investment Activity and Realizations
Despite a challenging environment for private equity exits, HgT has maintained consistent realization activity, returning £165 million to investors year-to-date with an average uplift of 22% over carrying value. Recent exits include The Citation Group, SmartTrade, Trackunit, and P&I.
The following chart compares HgT’s realization activity to the broader global buyout market:
On the investment front, HgT deployed £376 million year-to-date (including £38 million in co-investments) across companies with similar defensive business models. Notable investments include IFS, A-LIGN, The Citation Group, SCOPEVISIO, P&I, and Payworks.
An interesting case study is the re-investment in P&I, a leading provider of payroll and strategic HR software headquartered in Germany. The company serves over 15,000 customers with impressive retention rates exceeding 95% and net revenue retention above 115%.
Balance Sheet and Future Commitments
HgT maintains a robust balance sheet to support future investment activity, with £2,489 million in portfolio NAV and £353 million in available liquidity against £1,729 million in total outstanding fund commitments. Of these commitments, £389 million is expected to be called within the next 12 months.
The trust has made new commitments to Hg funds, including €150 million to Mercury 5, €350 million to Genesis 11, and $1 billion to Saturn 4. These commitments are sized in line with previous vintages relative to NAV and will benefit from subscription lines at the fund level, delaying expected capital calls until 2026-2027 and providing increased visibility over future cash flows.
The following chart shows HgT’s portfolio growth compared to other European tech firms:
Outlook
Looking ahead, HgT’s management expressed confidence in the continued resilient trading performance of its portfolio companies. The trust plans to maintain its selective investment approach, focusing on companies with defensive business models similar to existing portfolio companies.
Management highlighted their excitement about the long-term opportunity for automating workflows and indicated they will continue to prioritize returning cash to clients through realizations when appropriate market conditions present themselves.
With its focus on mission-critical software businesses with recurring revenue models, HgT appears well-positioned to navigate market uncertainties while delivering long-term value to shareholders.
Full presentation:
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