HgCapital Trust, the listed investment arm of UK-based HgCapital, saw its net asset value per share decline by 2.2 percent in the first half of the year.
Despite an uplift in the share price, which climbed around 13.6 percent over the period, the trust’s NAV decreased from £438 million to £437.7 million in the six months to the end of June. The share price dropped on the news, falling from 1.247p at close of Wednesday to 1.180p on Friday – a 7.5 percent decrease.
“[This decline in NAV] is disappointing, particularly in the context where a majority of our portfolio companies have continued to trade well,” commented Stephen Bough, CFO at HgCapital, in a company webcast.
He attributed the drop to the decision taken by the manager to write down a number of underperforming investments, including recruiting business Lumesse and online security specialist NetNames, two companies whose reduced valuations led to a £13 million decrease in NAV. A decrease in the valuation of Hg's businesses operating in the consumer area, Teufel and Americana, further reduced NAV by £4.6 million.
A couple of other, less obvious factors also came into play, Bough explained. These included the very low yields offered by UK government bonds, in which the trust has a third of its NAV invested, as well as the relative immaturity of the vehicle’s portfolio.
Some analysts remain relatively optimistic that NAV will recover, however. “They've taken the write-down now, but they have a history of being pretty conservative with their valuations,” Ewan Lovett-Turner, associate director at broker Numis Securities, told Private Equity International. “Things aren’t going to plan now, but they've introduced new management and they’re taking the steps needed to turn these companies around. And they have a record of doing that in the past.”
He pointed to the example of SHL, a HR business that Hg initially wrote down but which it ended up exiting on a 3.1x return multiple, as well as laundry machine provider JLA, now valued at 1.4x cost.
The trust’s top 20 buyouts have indeed continued to post strong performance, registering 5 percent and 8 percent growth in revenue and EBITDA respectively. The top 10, which represent 65 percent of the trust’s portfolio value, posted sales and EBITDA growth of 10 percent and 7 percent .
These results come a few months after HgCapital closed its latest £2 billion fund, to which HgCapital Trust committed £200 million last March. The vehicle has already made three investments, including e-conomic and Nair & Co in August and IntelliFlo in July.