HgCapital Trust (HGT) is the centre of attention with a flurry of news following a 25% share price slump over the threat to its private software companies from low-cost artificial intelligence rivals.

In a bid to reassure shareholders, the board of the now £1.7bn investment trust, which invests in the private equity funds of manager Hg, rushed out its annual trading statement this morning.

In comments chiming with those of Hg chief investment officer Matthew Brockman yesterday, the company said: “Given the strength of the HgT portfolio, the market positions that portfolio companies enjoy & Hg’s skill & experience as a manager, the board believes that the current share price represents significant value.”

It has instructed broker Deutsche Numis to launch a buyback programme for up to 15% of its shares, which rallied over 6% yesterday after Investec issued a “buy” recommendation and Jupiter Fund Management disclosed it had scooped up a 5.5% stake on Tuesday when the shares fell most heavily.

HGT chair Jim Strang and two non-executive directors also jumped into the market to buy the depressed shares.

Demonstrating conviction in its thesis on business software companies, HGT last night also confirmed Hg’s $6.4bn buyout of US enterprise software provider OneStream, in which it said last month it was investing £93m.

Shareholders in the Nasdaq-listed company will receive $24 cash per share, a 31% premium to the share price, in a transaction led by Hg’s Saturn fund with US institutions General Atlantic and Tidemark taking minority stakes.

The full-year update showed HgT made an estimated underlying total return of just 4% last year and had net assets of £2.6bn at 31 December with net asset value per share of 562p.

Prospects of an early crystallisation of gains in Visma, the Norwegian cloud business software provider, have dimmed, however. Reports this morning say the company, HGT’s top holding at 12.1% of assets, is considering a delay to a potential €19bn (£16.5bn) flotation in London.

Against yesterday’s closing price of 403.5p, HgT stood on a 28% discount. That has narrowed this morning, however, with the shares jumping over 5% or 20.7p to 424.2p, down from 507p on Tuesday 27 January.

Upgrading HGT from “hold” to “buy” yesterday following its sharp decline, Investec analyst Alan Brierley said while there were clear risks to software-as-a-service providers from the competitive threat of AI rivals such as Anthropic, “we find it unlikely that the disruption will be as ubiquitous and instantaneous for HGT’s portfolio as this move implies”.

According to Winterflood data, in the past five years HGT has generated a 90% underlying total return from its investments in enterprise and regulatory software providers, data analytics firms, fintech companies and internet infrastructure. That’s in line with the average of its immediate peer group of 3i Group (III), Castlenau (CGL), NB Private Equity (NBPE), Literacy Capital (BOOK), Oakley Capital Investments (OCI) and Partners Group (PEY).

However, the shares have delivered only 29% due to trading at a discount below net asset value for much of the past four years. That compares to a 57% average total shareholder return from its sub-sector. In the past year the shares have stood at an average discount of 8% with the gap to NAV widening only recently.

Our view

James Carthew, head of investment company research at QuotedData, said: “I’m a shareholder in HgCapital Trust and pleased to see this morning’s bounce in the share price. However, share prices of companies such as Sage, RELX, and the London Stock Exchange are falling again. These are the types of listed comparators that are factored into Hg Capital Trust’s net asset value calculation. It is hard to imagine that the next NAV won’t be lower. That means caution is required about what prices HGT pays for stock in the buyback; buying back stock at a premium would be value destructive.”

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