HGCapital Trust PLC · LSE:HGT
HGCapital Trust — Q3 2024 Earnings Presentation
34 slides from HGCapital Trust's earnings presentation, November 2024
Slide 1: Q3 2024 update: Get connected
Q3 2024 update Get connected to a universe of software and services businesses This document accompanies the interim report to 30 September 2024. The information in this document contains a summary of information set out in this report. References in this document to HgCapital Trust plc have been ab
Slide 2: Compounding growth: the power of a long-term investment strategy
Compounding growth: the power of a long-term investment strategy Both HgT’s share price and net asset value per share have consistently outperformed the FTSE All-Share Index over the long-term +20.1% p.a. Long-term performance 10-year share price return Based on HgT’s share price at 30 September 202
Slide 3: HgCapital Trust (HgT)
HgCapital Trust (“HgT”) HgT is a FTSE 250 investment company listed on the main market of the London Stock Exchange and managed by Hg, Europe’s largest software investor1 Investment strategy Objective to provide focused on profitable consistent, long-term Resilient business and growing returns throu
Slide 4: HgT is Hg's largest client, committed to all Hg funds
HgT is Hg’s largest client, Pension Sovereign Wealth Endowments and insurance plans Funds companies committed to all Hg funds HgT provides listed access to “the free float” of >$150bn EV of Hg HgT’s underlying Hg’s largest Software “Inc” >$70bn Hg’s portfolio listed investor base LP investor FUM com
Slide 5: Targeting robust and resilient 'Hg sweet-spot' business models
Targeting robust and resilient ‘Hg sweet-spot’ business models Company maturity Business model Deep sector Typical equity investment of attributes knowledge >€100m Tax & Accounting Business critical software ERP & Payroll or service Legal and Compliance Subscription / repeat Automation and Engineeri
Slide 6: Focused 'Hg Cluster' approach has driven deep sub-sector knowledge
Focused ‘Hg Cluster’ approach has driven deep sub-sector knowledge Tax & Accounting >20 years ERP & Payroll >20 years Legal & Regulatory >17 years Automation & Engineering >15 years Technology Services >14 years Fintech >11 years Healthcare IT >10 years Insurance >10 years Note: Hg portfolio at 30 S
Slide 7: Operational expertise across a wide range of areas
We have operational expertise across a wide range of areas, reflecting where we see repeat value creation opportunities Growth Tech, Product, Cyber Data and AI Projects Support Talent • Sales • R&D and tech platform • BI, warehousing, snowballs • First 100-days, onboarding • C-Suite team effectivene
Slide 8: Supporting material value impact across the Hg portfolio
We’re seeking to support material value impact across the Hg portfolio of companies PRICING >$100M EBITDA from pricing in LTM DATA TECH >£10m EBITDA from AI-driven process optimisations >$100M ARR uplift enabled via R&D projects (SaaS shifts etc) £30m+ ARR from past 3 Data monetisation Projects >$40
Slide 9: Demographics is destiny
Demographics is destiny Long-term decline in working age population is expected to drive up cost of labour and increase software adoption OECD working age population (m) Relationship between labour cost and software spend 950 2022: 1,800 900 All time high R2=0.80 1,600 United States Software and Ser
Slide 10: Increasing adoption of software across multiple end-markets
Increasing adoption of software across multiple end-markets Produce legal documents Find insurance Policy administration Disclose to Regulator Bill suppliers Handle litigation Job Scheduling Pay Duty / VAT Provide Pensions Catalogue parts Run my website Produce Accounts Employment Taxes Trade securi
Slide 11: Companies are staying private for longer
Companies are staying private for longer Median Market Value of Tech Initial Public Offerings by year, $m 5,000 4,500 1980-1990s 2000s 2010-2020s Median IPO valuation of c.$100-150m Median IPO valuation of $300-600m Median IPO valuation of $600m-$1bn+ 4,000 Opportunities for private tech Opportuniti
Slide 12: HgT provides listed access to the free float of >$150bn EV of Hg's portfolio
HgT provides listed access to “the free float” of >$150bn EV of Hg’s portfolio of private software and services businesses 6% $235bn 20% >$150bn 5% 21% $46bn Revenue $31bn 7% 12% growth 5% $11bn $11bn EV $5bn Source: Factset, Europe tech firm EVs and Hg’s EV reported as at 30 September 2024. FY23 LT
Slide 13: Continued strong trading from 'Rule of 40+' portfolio
Continued strong trading from “Rule of 40+” portfolio Rule of 40+: 12% organic revenue growth and 34% EBITDA margins for the top 20 companies (76% of portfolio) 20% 24% 34% LTM revenue growth1 LTM EBITDA growth1,2 EBITDA margin2 At 30 September 2024. 1. LTM revenue and EBITDA growth including M&A. 2
Slide 14: Consistent realisation activity in a challenging environment for exits
Consistent realisation activity in a challenging environment for private equity exits HgT has continued to generate significant liquidity despite £349m of realisations in YTD 2024 (YTD 2023: £248m), a collapse in market exit volumes from the peak in 2021 representing 14% of opening portfolio value.
Slide 15: Increased activity in 2024 reflects an improving investment environment
Increased activity in 2024 reflects an improving investment environment £523m invested YTD 2024 (YTD 2023: £46m), including £109m of fee-free co-investment £19m £19m £20m £126m YTD 2024 has seen a significant increase in investment activity compared to 2023 £25m £25m Co-investment has increased to 1
Slide 16: Portfolio company balance sheets: >70% equity in capital structures
Portfolio company balance sheets: >70% equity in capital structures HgT top 20 capital structures 72% 26.0x Valuation multiples have remained stable since the start equity EV/EBITDA of the year. (Dec 2023: 26.1x) We have taken advantage of an improving environment to refinance a significant portion
Slide 17: HgT portfolio company valuations are in-line with public companies
HgT portfolio company valuations are in-line with public companies Approximate EV/LTM EBITDA 40 35 HgT 30 25 20 Public software and services 15 10 INDICATIVE Update chart 5 for H1 2024 0 Q1-20 Q2-20 Q3-20 Q4-20 Q1-21 Q2-21 Q3-21 Q4-21 Q1-22 Q2-22 Q3-22 Q4-22 Q1-23 Q2-23 Q3-23 Q4-23 Q1-24 Q2-24 Note:
Slide 18: HgT's robust balance sheet supports future investment activity
HgT’s robust balance sheet supports future investment activity Pro-forma undrawn commitments and available liquid resources Undrawn commitments of £720m (30% of September NAV) Credit facility increased and extended during 2024 to be called over 3-4 years • Revolving credit facility increased to £375
Slide 19: Outlook
Outlook Resilient trading performance underpinned by mission-critical nature of products and services provided by portfolio companies Improving deal environment is supportive of increased investment activity We continue to focus on consistency of realisations, with further liquidity events anticipat
Slide 20: Appendices
Appendices
Slide 21: Top 10 portfolio companies (55% of the total portfolio)
Top 10 portfolio companies (55% of the total portfolio) % Company Cluster Location Description Portfolio • Provides business-critical software to SMEs and the public sector in the Benelux and Nordic regions, providing c.1.9m Tax & Accounting/ Scandinavia enterprise customers with accounting; resourc
Slide 22: Portfolio diversified by cluster, vintage and geography
Portfolio diversified by cluster, vintage and geography Hg cluster by value Investment vintage by value Geographic spread by value Automation & Pre-2020 Healthcare IT Germany 5% Engineering 9% Technology 10% Services 3% 2024 UK 7% 25% Other Europe 34% Tax & Accounting 2020 11% Fintech 30% 20% 7% 202
Slide 23: Hg's fund architecture and HgT's permanent capital allow us to run winners for longer
Hg’s fund architecture and HgT’s permanent capital allow us to run winners for longer, compounding growth over many years HgT first invested in Visma in 2006 through Genesis 5 and has been a longstanding investor through Genesis 7, Saturn 1, Saturn 2, Saturn 3, and as a co-investor. 2006 2023 €2,451
Slide 24: Hg track record
30+ year 3.1x / 32% track record of investing Gross track record on realised and partially realised buyout investments c.$73bn #2 funds under management Private equity tech investor globally1 4th c.380 Best performing private equity professionals including >240 As at 30 June 2024; adjusted pro forma
Slide 25: Recognised as a major global tech investor
Recognised as a major global tech investor “Leading fund performance” “Tech Investor of the Year 2022” Hg ranked as the best performing 2023 #3 performing PE fund ($500m-$999m) European manager and 4th globally 2023 #5 performing PE fund ($1bn+) “GrowthCap’s top 30 Private Equity Firms for 2023 for
Slide 26: ESG at Hg
ESG at Hg Hg’s ESG team supports the firm and its portfolio companies on Portfolio initiatives strategic ESG initiatives across a range of areas. ESG Diagnostics: Assessing portfolio against Hg’s Sustainable Business framework, providing support UNPRI2 Signatory since 2012 Article 8 ★★★★★ Direct – P
Slide 27: Global team across five offices
Global team across five offices Senior Leadership Team Name Nic Humphries Matthew Brockman Justin von Simson Steven Batchelor Alan Cline David Issott JB Brian Managing Partner, Head of Munich Office, Senior Partner Partner and Partner and Partner and Partner and Title Chairman of IC, and Co-Head Man
Slide 28: In the long run, earnings growth is all that matters
In the long run, earnings growth is all that matters Earnings drive consistent returns. Multiples are much more volatile 50% 1000% 40% 800% This breaks down the annual returns from the 30% 600% largest software-focussed ETF (IGV), into the 20% 400% component coming from earnings (blue) and from Cumu
Slide 29: Earnings: steady outperformance continues
Earnings – steady outperformance continues 900 EPS Software 800 700 600 500 400 300 Market 200 100 0 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 Past performance is not a reliable indicator of future results Note: Based on IGV ETF (tracks c. 100 US tech companies, mainly software), NTM PE and
Slide 30: Earnings growth matters: cheapest companies
Earnings growth matters Cheapest quartile from 2014 – 1.6x returns, almost half from multiple expansion Cheapest 10 companies 180 We show the performance of 160 buying “cheap” software 30 155 companies ten years ago – a 140 material proportion of returns 120 have been driven by multiple 24 expansion
Slide 31: Earnings growth matters: most expensive companies
Earnings growth matters Most expensive 10 companies from 2014 – 4.0x returns, NO multiple expansion Cheapest 10 companies Most expensive 10 companies 180 450 160 400 302 401 30 155 140 350 120 300 24 100 250 100 80 200 150 60 100 40 100 50 20 0 0 2014, most Multiple Earnings growth 2024 value 2014,
Slide 32: Contact
Contact For further information on HgCapital Trust plc, please visit our website: www.hgcapitaltrust.com Or contact our Investor Relations Team at: investorrelations@hgcapitaltrust.com Laura Dixon +44 78 2459 2894 George Crowe +44 20 8152 5880 Barty Bodilly +44 7467 992412 You can also follow us: Li
Slide 33: Disclaimer
Disclaimer NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, INTO OR WITHIN THE UNITED STATES OR TO “US PERSONS” (AS DEFINED IN REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR INTO OR WITHIN AUSTRALIA, CANADA,
Slide 34: Disclaimer
Disclaimer These materials include statements that are, or may be deemed to be, "forward-looking statements" which are based on current expectations and projections about future events. In some cases, these forward- looking statements may be identified by the use of forward-looking terminology, incl