The 3i Group (LSE: III) share price slumped 7.5% this morning (15 May) after it published full-year results to 31 March.
That’s a blow for me, as it’s the single biggest FTSE 100 holding, worth an overmighty 10% of my entire self-invested personal pension (SIPP).
It’s been my best performer since I added it to my SIPP in 2023, having more than doubled my money.
Yesterday, I was sitting on a total return of around 100%. Today it’s declining towards 90% after markets took a dim view of this morning’s numbers.
That reaction feels harsh. Yet I expected it. Expectations have been sky-high following recent stellar performance. A knock was almost inevitable.
Profits, payouts and portfolio power
3i Group’s total return jumped to £5.05bn, equal to an increase of 25% on opening shareholder funds. Net asset value per share jumped 22% to 2,542p. That includes a 27p per share loss on foreign exchange translation.
That’s solid progress in any year, let alone the current uncertain one.
The group’s biggest holding by far, Dutch discount retailer Action, generated a gross investment return of £4.55bn, up 32% on its opening value. Revenues grew 22%, with like-for-like sales up 10.3%. EBITDA earnings jumped 29%. These are not the numbers of a company in decline.
Chief executive Simon Borrows said the firm remains confident it can “compound growth across the portfolio in the years to come”. Let’s hope so.
The final dividend was lifted to 42.5p, taking the total for the year to 73p, up from 61p. That’s a 20% income boost. The trailing yield is just 1.55% though.
Long-term wonder
The shares have been going gangbusters lately. Even after today’s dip they’re up 45% over 12 months and 425% over five years. They passed unscathed through recent tariff volatility.
3i Group has been around since 1945 and knows what it’s doing. But I do have one concern.
Today’s report values 3i’s stake in Action at £17.83bn. That’s more than 75% of the group’s total £23.56bn portfolio. So there’s huge concentration risk here. Sometimes it feels like I’ve bought a European discount retailer with a private equity group clinging to its tail.
It’s done well through tough conditions, maybe because consumers have been trading down. But if the economy improves, they might start going to posher shops.
This stock could bite me
Expansion is still happening, but it won’t go on forever. At some point, 3i will need a clearer plan for what comes next. For now, management seems content to ride the tiger.
I’ve placed a lot of faith in 3i, and it has placed a lot of faith in a shop I’ve never even been in. Still, its deep experience and proven results give me confidence. Nothing in today’s announcement has shaken that.
The nine analysts serving up one-year share price forecasts have produced a median target of just under 4,402p. If correct, that’s a rise of more than 12% from today. These forecasts will have been made before this morning’s slump though. Brokers are clearly wary.
That’s hardly surprising, 3i Group shares now trade at a 69% premium to underlying net value. They’ve always been expensive, but that’s massive. If I was sensible, I would take some profits and cut my exposure. But for now, I’m going to ride the tiger too.
