After more volatile public markets and an ‘uncertainty pause’ in global IT spending in early 2025, the environment has become more favourable for HgT (LON:), leading to positive NAV TR in Q2 and Q3. We remain convinced in its equity story as a strong compounder benefiting from the secular digitalisation trend, as illustrated by its healthy NAV TR of 14.5% and 17.8% per year over the five and 10 years.
While the consequences of a platform shift like the one now triggered by AI are difficult to predict, HgT’s investment manager is experienced in navigating such disruptive changes and has built extensive AI capabilities to support its portfolio in the adoption journey, with some initial promising outcomes. HgT’s shares now trade at a 16.1% discount to NAV, versus a 10-year average of 8%.
Exhibit 1: HgT’s Portfolio Consistently Delivers High Revenue and EBITDA Margins
Source: HgT data. Note: *Across HgT’s entire portfolio. Growth rates are not fully comparable across periods due to differences in portfolio composition.
Long-Term Digitalisation Theme Remains Intact
The corporate digitalisation theme is supported by a structural decline in the working age population. Trading momentum in the software market seems to be improving after the softening in H125, with a 13% average increase in Q325 earnings forecasts for listed software businesses according to Hg’s head of research.
Gartner expects a significant budget flush before the end of the year. Hg remains confident in the potential of AI-enabled products, indicating that they are rapidly building their share in new business pipelines. Therefore, it hopes to see a more meaningful impact on revenue and margins across HgT’s portfolio in the next one to two years.
A Well-Defined Playbook to Deliver Consistent Returns
Hg maintains its focus on its eight core end-markets within mission-critical, low-spend software for SMEs to generate steady, attractive returns from each investment with low volatility. Over the last 25 years, it delivered an average gross internal rate of return (IRR) of more than 30% and a multiple on invested capital (MOIC) of over 3x at a very low loss rate of less than 1%. An important enabler of these returns is the depth of new investment opportunities arising from the fragmentation of the European market (European-domiciled companies make up c 74% of HgT’s portfolio). We consider HgT an interesting addition to a broader tech portfolio as it provides a balance to the ‘Magnificent 7’ exposure – a particularly appealing option in light of the current demanding AI valuations.
NOT INTENDED FOR PERSONS IN THE EEA
An Appealing Addition to a Tech Portfolio
HgT is a private equity (PE) investment company that invests in leading, profitable, unquoted European mid-market businesses with an international footprint, offering mission-critical, low-spend software solutions to SMEs. It currently holds a portfolio valued at c £2.5bn consisting of over 55 such holdings at end-September 2025 and provides high-quality exposure to the corporate digitalisation theme.
The trust offers a combination of a high share of recurring revenues (usually 90%+) based on software-as-a-service (SaaS) subscription models, high customer retention, as well as cash conversion (measured as free cash flow to EBITDA) of over 90%. HgT’s ‘sweet spot’ lies in defensive tech growth companies operating in one of eight core end-markets: tax and accounting; enterprise resource planning (ERP) and payroll; legal and compliance; automation and engineering; insurance; SME tech services; fintech; and healthcare IT.
The vast tech expertise and value creation capabilities of Hg come from a combination of three strengths:
- Its in-house team of operational experts, which includes more than 50 senior operational specialists, each supported by a network of trusted third-party associates and partners;
- An extensive community consisting of key managers from its portfolio companies (called Hg Hive); and
- Intellectual property, tools and group services on which its portfolio companies can rely.