Under £31 a share, this ‘smart money’ FTSE favourite still looks a bargain to me!

This FTSE investment firm focuses on value-for-money, infrastructure and healthcare sectors, and looks to have strong growth prospects ahead.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Hand of person putting wood cube block with word VALUE on wooden table

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

FTSE 100 investment company 3i Group (LSE: III) has long been a favourite of ‘smart money’ investors, in my experience. This is money controlled by major financial organisations, including investment banks, hedge funds, and pension funds.

For other investors, the seeming complexity of private equity businesses can be off-putting, I think.

But essentially what 3i does is invest in mid-sized companies headquartered in Europe and North America. It earns fees from the money invested in these businesses and from a share of the profits that they generate.

Should you invest £1,000 in Admiral right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Admiral made the list?

See the 6 stocks

Set for Action

Eighty-seven percent of 3i’s investment portfolio is focused on the value-for-money, infrastructure and healthcare sectors.

But by far its single-biggest investment is a 57.6% holding in Action — Europe’s fastest-growing non-food discounter.

This investment generated a gross return of £3.718bn over 3i’s full-year 2024 ending on 31 March. It delivered annual revenue growth of 28% compared to 2023, sales growth of 16.7% and EBITDA growth of 34%.

Overall for 3i, full-year 2024 saw a total return of £3.839bn. This equates to a 23% return on opening shareholders’ funds.

Action’s financial year runs from January to December. Over its first quarter of 2024, net sales jumped 21% (to €3.004bn) against Q1 2023, while operating EBITDA rose 28% (to €397m).

The key risk here for 3i in my view is that Action’s business growth slows down. However, it opened 119 new stores in H1 2024 and plans to open 330 overall this year.

Moreover, consensus analysts’ estimates are that 3i Group’s earnings will jump 15.6% each year to end-2026.

Weighing up the stock price

On the back of this growth, 3i’s shares have risen 61% from their 31 October 12-month low of £19.27.

This might cause some investors to avoid the shares, thinking they have risen too far already. Others may think that they need to jump on the bandwagon simply to avoid missing out.

Neither of these approaches is conducive to making good long-term returns, in my experience as a former investment bank trader.

The only thing I want to know is whether there is any value left in the stock. If there is, I would then decide whether it is right for my stage in the investment cycle.

Is there value left in the shares?

On the first point, 3i currently trades on the key price-to-earnings (P/E) ratio measure of stock valuation at just 8.

This is the lowest of its peers, which average 34.5, so it is very cheap on this basis. The group comprises Intermediate Capital Group at 13, Partners Group Holding at 31.6, Bridgepoint Group at 37.8, and CVC Capital Partners at 55.4.

To find out how much of a bargain the shares are in cash terms, I ran a discounted cash flow analysis. This shows the stock to be 65% undervalued at the current price of £30.95.

So a fair value would be £88.43, although it may go lower or higher than that.

Created with Highcharts 11.4.33i Group Plc PriceZoom1M3M6MYTD1Y5Y10YALL4 Sep 20194 Sep 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '242020202020212021202220222023202320242024www.fool.co.uk

Will I buy the shares?

Aged over 50 now, I am focusing on high-yield shares only, and 3i’s 1.9% dividend return is not enough for me.

However, if I were even 10 years younger I would buy the stock for its high growth prospects and extreme share price undervaluation.

Should you buy Admiral now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Simon Watkins has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

10% dividend yield! Here’s a FTSE 100 share to consider in April for passive income

This FTSE 100 stock just soared past the 10% yield mark, making it a potentially lucrative option for investors targeting…

Read more »

Young black woman using a mobile phone in a transport facility
Investing Articles

3 FTSE 100 safe haven stocks to consider as trade wars bite

I'm confident in the long-term outlook for the FTSE index of stocks. But these blue chips may protect investors from…

Read more »

Investing Articles

Here’s how Trump tariffs could hand us some top passive income bargains

As tariff terror grips the stock market, it's time for passive income investors to steel our nerves and look for…

Read more »

Investing Articles

These FTSE shares may offer some safety as Trump slaps tariffs on trading partners

FTSE shares moved lower on 3 April, after US President Donald Trump introduced hefty tariffs on its trading partners. These…

Read more »

Investing Articles

6.8% dividend yield! Consider these 2 ‘secret’ passive income stocks to target a £1,360 payday in 2025

Looking for ways to generate above-average dividend income? These lesser-bought income stocks are worth a close look.

Read more »

Elevated view over city of London skyline
Investing Articles

The M&G dividend yields over 10% — and could get higher!

Christopher Ruane explains why he's upbeat about the long-term outlook for the M&G dividend yield and would happily buy the…

Read more »

Young Caucasian man making doubtful face at camera
Investing Articles

2 popular UK growth stocks I wouldn’t touch with a bargepole in today’s market

Buying growth stocks can deliver market-beating returns, but this FTSE 250 pair doesn't look like a convincing investment for our…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

10 FTSE shares falling today after President Trump’s tariffs bombshell!

Our writer explains why JD Sports Fashion from the FTSE 100 and a diverse bunch of other UK stocks are…

Read more »