HgCapital Trust Reports 4% NAV Growth and AI-Driven Exits in 2025 Annual Results

The GTreasury case is topical: Hg’s Catalyst team helped launch GSmart AI to surface risks and recommended actions from decades of data – a capability that resonated with customers and preceded a sale at a 97% uplift. Management also notes they are already selling AI-first applications across many businesses, with current budgets showing a significant EBITDA benefit from AI initiatives.

New Money to Work and More Co-investment

HgT invested £357 million in 2025 across names including IFS, P&I, A‑LIGN, Citation, Payworks, Diamant Software and Scopevisio. Co-investment (where HgT pays no management or performance fees) was £34 million and reached roughly 10% of NAV at year-end – in line with the long-term 10–15% target.

Post period, HgT invested £139 million into OneStream and Septeo, including £46 million of fee-free co-investment. After these transactions, co-investments are expected to represent about 12% of NAV. On fund pacing, HgT increased commitments to Hg Genesis 11 to €700 million and Hg Mercury 5 to €300 million, and trimmed Hg Saturn 4 from $1.0 billion to $900 million. Capital calls are staggered – Saturn 4 from 2026, Genesis 11 and Mercury 5 anticipated from 2027 – and HgT retains an “opt-out” right.

Share Price Slide and a Much Wider Discount

Public market volatility in Q1 2026 – especially in software due to AI concerns and capital rotating to hardware – has hit HgT’s shares. By 28 February 2026 the share price was 398.0p, down 21.5% year to date, versus a pro-forma NAV of 560.9p. On my calculation from the RNS numbers, that’s roughly a 29% discount to NAV (versus around 10% at 31 December 2025).

The Board has initiated a share buyback programme (6 February 2026), using a framework of discount “triggers” to weigh buybacks against long-term NAV compounding. Management argues recent public-market moves look sentiment-driven rather than fundamentals-led for enterprise software.

Balance Sheet, Liquidity and Commitments

Year-end available liquid resources were £368 million, including a £375 million revolving credit facility (£36 million drawn). Outstanding commitments were £2.2 billion (85% of NAV), expected to be called over the next four to five years. Pro-forma, after announced transactions and the full-year dividend, available liquid resources were £374 million at end-February (15% of pro-forma NAV), with outstanding commitments of £2.1 billion (83%).

HgT emphasises its subscription facilities, the staged nature of capital calls, and the contractual “opt-out” right as tools to manage the balance sheet through different scenarios.

Dividend – Key Dates for Your Diary

• Final dividend: 3.0p per share (full year 5.0p per share).
• Ex-dividend date: 19 March 2026.
• Record date: 20 March 2026.
• Last date for DRIP instructions: 20 April 2026.
• Payment date: 12 May 2026.

What I Think: Positives and Watch-outs

What looks good

• Resilient trading – LTM revenue +17% and EBITDA +19% with 33% margins across a diversified, mission‑critical software portfolio.
• Realisation quality – £215 million of proceeds in 2025 at a 25% average uplift, plus the Intelerad uplift of 62% post period. GTreasury at a 97% uplift underscores buyer appetite.
• AI traction – real products shipping and budgets showing a significant EBITDA benefit from AI initiatives, backed by Hg Catalyst’s build capacity.
• Co-investment rising – more fee-free exposure that should enhance net returns over time.
• Buyback in play – sensible use of the toolkit amid an enlarged discount.

What to monitor

• Valuation headwinds – an 8% drag from multiple contraction in 2025 and management caution that persistent public-market de-ratings can feed into private marks.
• Leverage levels – portfolio net debt/EBITDA at 7.4x is typical for software buyouts but still demands steady cash generation and covenant headroom.
• Commitments vs liquidity – £2.2 billion outstanding at year-end (now £2.1 billion pro-forma) against liquid resources of £368–374 million. Calls are spread over 4–5 years and there’s an opt‑out, but pacing is important.
• Share price volatility – sentiment around AI’s impact on incumbents is driving sharp moves that may not reflect underlying trading.

Long-Term Context Still Favourable

HgT’s 10-year share price total return is +18.9% per annum, outperforming the FTSE All-Share by +10.5% per annum. Based on 31 December 2025 share price and with dividends reinvested, £1,000 invested 20 years ago would be worth £13,881, versus £3,839 for the FTSE All-Share Index. Past performance is not a guide, but it frames how the model has worked through cycles.

Bottom Line

2025 shows the engine is working: strong trading, exits above book and tangible AI progress. The snag is external – lower listed comps and a bruised sentiment for software have weighed on marks and the share price, widening the discount. If the portfolio keeps compounding earnings and exits keep printing at uplifts, the gap between price and value