Shares in HgCapital (HGT) have bounced back to life today after it brought forward its annual trading update to reassure panicked investors.

Its shares tanked 25% in a week as AI developer Anthropic unveiled a legal productivity tool that raised questions over the long-term relevance of data and software companies − sectors which the £1.8bn private equity trust specialises in.

Last month, HGT doubled down on this conviction with a £93m investment in enterprise finance software provider OneStream.

Soothing investors’ concerns today, the trust reported a 4% increase to its net asset value (NAV) for the year, with shares rallying 4.9% following the news.

Winterflood analyst Alex Trett noted that while these numbers come in ‘well below expectations’, they still demonstrate strong underlying performance, supported by a 17% uplift in  revenue and generating margins of 34%.

The trust invested £357m into new companies over the period, while exits brought in £215m. Another positive was the average uplift on realisations of 25%, with GTreasury most notably selling at 97% premium.

HGT has also benefitted from value-hunters seeing the rare heft of its discount as an attractive entry point. One of them was Investec’s Alan Brierly, who upgraded his rating to ‘buy’ on a ‘tactical basis’, saying he finds it ‘unlikely’ that the disruption will be as ‘ubiquitous and instantaneous’ for the portfolio as the first swing implied. 

‘The portfolio comprises vertically integrated Software-as-a-Service businesses with proprietary data and highly regulated use cases. Hence, while there are clear risks to simply looking ‘across the valley’, and this remains a highly complex and fast-moving situation, our initial view is that a c.31% share price discount to the 30 September NAV provides a substantial margin of safety,’ he added.

Jupiter Fund Management also acquired a significant 5.5% stake during the slump, and Hg is now taking advantage of the price drop itself, backing its investments through a buyback programme also announced today.

It will be carried out under existing authority from the May 2024 general meeting, allowing the repurchase of up to 14.99% of issued capital, or 68.6m shares.

As of yesterday, the discount stood at 26.9%, down from a one year average of 8%.

Stressing the indiscriminate nature of the sell-off in the update, the trust said: ‘Given the strength of the HgT portfolio, the market positions that portfolio companies enjoy and Hg’s skill and experience as manager, the board believes that the current share price represents significant value.’

It noted that public market sell-offs only partially feed through to its portfolio valuations: typically, just 20–40% of movements in listed software multiples are reflected in NAV, with private M&A comparables serving as another key valuation anchor

Hg’s view remains that AI presents ‘significant opportunities for innovative, product-led, incumbent software companies.’