- Share price back above 2002 levels
- Biggest contributor is retailer Action
- Buy-and-build approach pays dividends
FTSE 100 private equity manager 3i Group (III) demonstrated once again its ability to add value for shareholders whatever the economic weather with an increase in NAV (net asset value) of more than a quarter in just the last nine months.
The shares jumped over 5% to £15.36, taking them not just to a post-pandemic peak but their highest level in more than 20 years.
ACTION DRIVES BUMPER GAIN
Despite the turmoil caused to the global economy by the war in Ukraine and to the UK economy by the disastrous mini-budget in September, 3i has seen the value of its assets rise by 11.6% during the final quarter of last year and its total return rise by 26.8% since April 2022 to £16.49 per share including a 23.25p per share dividend paid on 11 January.
Most of the uplift in value has come from the firm’s 52.7% stake in European non-food discount retailer Action, which operates more than 2,200 stores across 10 countries as well as a highly successful online shopping site.
In 2022, Netherlands-based Action increased its sales by 30% and its EBITDA (earnings before interest, taxes, depreciation and amortization) by 46%, yet it still has ‘considerable white space roll-out opportunity ahead of it’ according to 3i chief executive Simon Borrows.
Based on its 12-month run-rate earnings of €1.3 billion, and using a multiple of 18.5 times net of a discount to account for the fact the company is private rather than publicly-quoted, 3i’s valuation of its stake in Action was £10.276 billion at the end of December against £8.6 billion in September.
Therefore, Action now makes up almost 60% of the private equity firm’s NAV compared with just over 40% in September.
The firm’s next-biggest investment in terms of net asset value is its only quoted holding, in 3i Infrastructure (3IN), whose share price rose 10% in the final quarter of 2022 taking the value of 3i’s stake from £817 million to £899 million, on top of which it received £15 million of dividend income.
ACTIVE MANAGEMENT
The 3i team aren’t simply passive investors, however, and over the last nine months follow-on investments in some of its smaller private holdings - including pharmaceutical, technology and services businesses - have come to £330 million, maintaining the firm’s buy-and-build strategy.
At the same time, the team received total realized proceeds of £471 million last quarter after selling its investment in French natural healthcare company Havea, and in December it agreed the sale of Christ, its last investment in EuroFund V, for gross proceeds of €53 million representing a 43% uplift on the end-March valuation.
Also in December, portfolio company Cirtec Medical agreed to acquire a precision components business from fellow portfolio company Q Holding in a self-funded deal which will see 3i receive $172 million this quarter.
