Jefferies has moved HgCapital Trust (HGT) from a "hold" to an "underperform" rating, citing what its analysts characterize as a tightening of valuation margins across the trust’s software-heavy portfolio and heightened vulnerability from multiple levels of gearing within the capital structure.
The downgrade, issued on Thursday, follows a review of recent EV/EBITDA multiple moves in public software comparables and consideration of how those moves typically transmit to private portfolio company valuations, according to the analysts. Jefferies notes that after incorporating expected portfolio valuation declines, HGT shares are trading at what it views as a relatively narrow discount to net asset value.
Valuation moves in public software comparables
The report highlights substantial EV/EBITDA de-rating in public software benchmarks year to date. Specifically, the S&P Software and Services Index has seen an approximate 4.3x decline in EV/EBITDA terms, while the MSCI Europe Software and Services Index has experienced an approximate 4.1x fall. Jefferies attributes these moves to market concerns about the implications of artificial intelligence for the sector.
Using HgCapital Trust's guidance that 20%-40% of movements in public comparables generally flow through to portfolio company valuation multiples, the analysts calculate that roughly 0.8x-1.7x of multiple compression should be expected to show up in first quarter net asset value. Jefferies translates that compression into a 5%-11% decline in NAV, which would place shares at a 13%-7% discount to NAV under the scenarios modelled.
M&A and broader multiple-risk scenarios
Jefferies also warns that if current market conditions persist, transaction multiples in M&A could contract further, driving additional EV/EBITDA multiple compression and larger NAV reductions for the trust. The analysis uses an estimated average portfolio EV/EBITDA multiple of 24.7x as of December 31, 2025, and runs de-rating scenarios from 2x through 8x.
Under a 2x de-rating case, the report projects portfolio valuation falling from