Interactive Investor

3i explains why its shares are near new record high

20th July 2023 16:32

by Graeme Evans from interactive investor

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It’s had a tremendous run over the past decade and there’s potential for more, believe those in the know.

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Top-performing FTSE 100 stock 3i Group (LSE:III) today revealed no slackening in pace by the discount retail chain behind its remarkable share price run since early 2020.

The private equity firm’s 130 million euros investment in Netherlands-based Action in 2011 is now valued at almost £12 billion based on the current 52.9% stake.

In today’s trading update, 3i said Action continued to outperform expectations after delivering 33% sales growth and a 52% rise in underlying earnings in the first half of 2023.

High customer footfall meant like-for-like revenues were 21.8% higher, while Action has  added a net 90 new stores as part of plans for an additional 300 sites this year.

The non-food business, which trades from more than 2,300 stores across Europe, continues to be highly cash generative with a half-year balance of 681 million euros (£591.5 million).

The latest robust growth, alongside resilient trading by other assets such as the personal care products firm Royal Sanders and European Bakery Group, contributed to 3i’s net asset value (NAV) rising 4.1% to 1,813p in the three months to 30 June.

The shares were broadly unchanged at 1,950.5p after today’s update, having jumped by more than 45% so far this year and from the 667p seen in the early days of the pandemic.

Bank of America has retained its “buy” recommendation and price target of 2,000p, noting that shares trade at a 8% premium to NAV compared with the 15% historical average.

Action represents 63% of 3i’s portfolio, with other companies operating in the private label, healthcare, industrial technology and business and technology services.

They include specialty chemicals firms Tato, which has come under pressure this year due to weak market demand and input price inflation.

Investment activity so far this year has focused on bolt-on acquisitions as part of a buy-and-build strategy. At European Bakery Group, recent deals to expand the product range and customer base have included the addition of UK-based Panelto.

Chief executive Simon Borrows said at May’s annual results that no company reflects the benefits of the company’s approach to thematic investing, disciplined pricing and active asset management more than Action.

He added: “We are now focused on developing a select number of other companies to fulfil their potential to also become long-term compounders for the group.”

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