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Private equity investment trust giant 3i plays the waiting game
The UK’s largest private equity investment trust 3i (III) appears to be in rude health if you look past the sentiment-driven volatility in its share price.
Indeed, while the shares were caught up in the Brexit-related sell-off of UK assets, first half numbers (15 Nov) revealed a robust total return of 10%.
This is an enviable level, particularly when compared with the performance of stocks during the period in question. It is worth noting that further value in the portfolio is expected to be realised in the second half of its financial year.
The company hopes to deliver a mid-to-high-teens return for shareholders through the cycle.
‘While 3i’s stock price may be volatile over the coming months, we feel it retains a healthy and relatively cautiously valued portfolio, and one where management oversight remains high,’ says Numis analyst Bill Barnard.
At 810p, the trust now trades on a 4.5% premium to net asset value, having traded more typically at a premium in the high teens and upwards historically.
The company made two new investments in the first-half period, buying into personal care products manufacturer Royal Sanders and cruise operator International Cruise and Excursions for
a combined £247m.
3i has been adapting to structural changes across different industries, selling out of lingerie brand Agent Provocateur and fashion brand Hobbs in 2017 amid the pressure on the high street.
That said, European discount retailer Action remains by far its largest investment, and the company added to its position in the business in the period as it continued to deliver robust like-for-like growth.
Despite sitting on net cash of £512m, the company does not appear inclined to consider too many new investments at this point.
Chief executive Simon Burrows says: ‘We have good momentum across our portfolio, but remain cautious about the pricing of new investment in general.’
Reading between the lines it looks like the company might be awaiting an opportunity to acquire assets more cheaply once the current market uncertainty has left its full mark on valuations. (TS)