HGT reckon the underlying multiples they use came down by between 10% and 15% in Q3 although the portfolio mix (a higher valuation for Access for the most part) saw the average weighted multiple actually increase. They also make the point that the multiples for comparable listed companies in the duller and more profitable software sub-sectors that they are invested in have come down less than the NASDAQ average. Then there is also the fact that the shares have moved from a small premium to a 20% discount and that sales and refinancings (although there are fewer than normal) are still being done at a fairly healthy premium to carrying values. Lastly, both sales and profit growth rates seem to be holding up pretty well at 31% and 26/27% throughout 2022.

Even with all those factors, I wouldn’t say I am entirely comfortable given it is one of my larger positions. That said, I added slightly to my position earlier this year (at around 360p I think) although it was a very small top-up.

As well as an overall multiple reduction, if there is a specific issue at either Access or Visma (15% and 11% of NAV respectively) that would hit the shares pretty hard I suspect.

I have considered to add HGT to my portfolio, however, i am not comfortable at all with the ” artificial” substantial multiple expansion embedded in the valuations and its substantial increase over the last years (Sept-22: 28.8x EV/EBITDA/Dec-2021: 27.4x EV/EBITDA/Dec-2020:22.1x EV/EBITDA, Dec-2019: 19.8x EV/EBITDA). There is a substantial uptrend in the EV/EBITDA multiples between 2020 and 2022, which the latter does not even seem to be supported by comparable/listed companies (e.g. Nasdaq performance in 2022) and transaction multiples which have dropped in the course of 2022.

Should the Sept-22 multiples be adjusted to Dec-20 or Dec-19 the HGT valuation would substantially drop by c. 30-40% (depending on net/debt levels which seem to have been increaseing over the period from 2020 to 2022). I’m looking forward to see HGT annual report for 2022 to see the EV/EBITDA multiple that they will use to derive the NAV. Very curious to see how can they justify such a high comparable/listed multiples given the uderperformance of the tech sector/Nasdaq in 2022.

What are your thoughts on the above? Is this is a concern on your assessment of HGT? If so, how did you get comfortable with the very high multiples to derive the NAV of the trust?

Thanks a lot in advance for sharing your thoughts.
Best,
Sergio

Hey Tom,

Will probably stick with LT Global for the time being but I could add a little LTIT as a side-bet if the discount widens out beyond 10%. The heavy weighting in the asset management business and the fact the rating moves around so much make it a different animal in my view.

Agree that a lot of the gloss has come off at SSON. I tend to be quite relaxed about individual buys as in a portfolio of 30 or so stocks, there are always going to be a few I think look less attractive. Since the IPO, they have added 9 stocks and sold 6 (Wingstop in both columns) so I wouldn’t say it has changed that massively in the last four years. Definitely watching it a lot closer to see what it all looks like once we come back into more normal market conditions (if there is such a thing!).

I haven’t had any particular issues with KR1 liquidity but I have only bought small amounts so far and, more importantly, not tried to sell any!

Curious if you’ve considered switching from Lindsell Global to Lindsell IT, given the latter is now at a discount (perhaps this will endure for a while, but it certainly still feels like a novelty). It’s been a rough few years, but the real long-term holders have still done pretty well. I suppose I think that what’s good for Lindsell Global should be good for Lindsell IT.

Smithson v disappointing – at the start of the year I was planning to have it as a top holding – I’m not sure exactly what triggered my loss of confidence… Partly my feeling that it should be more US-based like the Parent fund. Partly my lack of conviction in the manager – this may be very unfair, but the reports read like a robot programmed in ‘Fundsmith language’, which is not a terrible thing by any means, but I’m still looking for someone with real independent thought. Partly my questioning of some of the Buy decisions e.g. Fevertree (Lindsell started buying when it was much cheaper – though even they could have waited), wasn’t convinced by Wingstop or Rollins. I think the initial portfolio was very strong, but at this point would choose a US Growth tracker over this for the ‘Growth part’ of a portfolio.

KR1 is fascinating – it seems pretty much the best of a bad bunch for Crypto (especially in the UK) & at a hefty discount. Druckenmiller suggested, not unobviously he expects high correlation between Crypto & Nasdaq, so I see KR1 as potentially a way to get highly geared Growth exposure. Liquidity not great, is it? But maybe one to drip into gradually, with the assumption it will go down quite a bit for a while yet.

Good luck for Q4!