Skittish investors sent 3i Group’s (III) highly-rated shares tumbling 11% today. The private equity giant reported a “very good” first half return of 13% but reiterated its cautious approach to deploying capital against a “challenging” economic and political backdrop. It also warned the downturn in France meant Action, the discount retailer that makes up nearly three quarters of its £29bn portfolio, would likely miss its sales growth target.
Shares in the FTSE 100 investment company and fund manager slumped 10.7%, or 433p, to £36.38, a seven-month low despite £3.3bn growth in the six-month period.
Compared to their new net asset value (NAV) of £28.57 per share at 30 September, up from £25.42 at 31 March, the shares now stand 27% above NAV, a sharp reduction to their previous 48% premium.
3i’s large share price premium of the past decade makes it stand out in a listed private equity funds sector where undervalued share prices trail on discounts of 10%-56% below their NAVs. This reflects its strong performance with total underlying return of 259% over 10 years that has delivered 324% to impressed shareholders.
Most of this has been achieved through its majority shareholder in Action, the European discount retail juggernaut that now accounts for 73% of its £29.3bn portfolio.
3i’s investment in Action is now £21.4bn for a 60.1% stake that it lifted from 57.9% in March when it was worth £17.8bn.
The valuation of Action was made using an unchanged multiple of 18.5 times earnings of €2.54bn over the previous 12 months. In the nine months to 28 September, net sales grew from €9.56bn to €11.23bn and operating profits advanced from €1.23bn to €1.56bn on the back of strong consumer demand in all markets, apart from France, with 255 new stores opened. Like-for-like (LFL) sales, which exclude new stores, rose 6.3%.
However, chief executive Simon Borrows, who chairs Action, cautioned that “softening trading conditions in France, which accounts for around one third of sales, could pull Action’s LFL sales growth for 2025 below the 6.1% guidance Action gave in March 2025.” 3i highlighted the slowdown in France in its update in September.
Winterflood analyst Shavar Halberstadt said: “The concentrated nature of III means that investors should have a firm target price in mind for Action, and it is indeed disappointing that the discount store is not able to take advantage of, rather than suffer from, the French consumer weakness. The managers emphasised that the upcoming holiday period is key, and we suspect longer-term market sentiment will indeed be grounded in that data.”
