I set up my self-invested personal pension, or SIPP, just over two years ago, but five of my stock picks have already doubled in value.
One of them I no longer hold. That’s FTSE 250 financial services specialist Just Group. I banked a 170% gain after news of a private equity buyout on 30 July sent the share price soaring 70% in a morning.
Construction firm Costain Group is another success, climbing 142% on my watch. After recently securing a £1bn contract at the Sellafield nuclear plant, I think it’s got further to go.
Then there’s Rolls-Royce Holdings, up 130% in my SIPP (and more in my Stocks and Shares ISA), while Lloyds Banking Group has delivered a total return of around 115% with dividends reinvested.
That’s the thrill of buying individual UK shares rather than simply tracking the market. I’ve also taken the odd beating, notably Ocado Group, down 42%, and Diageo, down 36%. But the winners comfortably outweigh the losers.
3i Group shares are all action
Amid the double-my-money success stories, one FTSE 100 stock stands out. Private equity and infrastructure specialist 3i Group (LSE: III).
It’s one of the oldest names in the sector, founded after the Second World War, and it’s been making money from acquiring, improving, and selling businesses for decades. Yet, few investors seem to talk about it.
I’m happy to be the exception. I went big on the investment trust, and it’s now my second-largest SIPP holding after my US tracker funds. It’s up a modest 30% over the past year but 300% over three. Personally, I’m up 112%.
In full-year results published in April, 3i reported a total return of £5.05bn, a 25% gain on opening shareholders’ funds. Its star holding, Dutch discount retailer Action, accounted for £4.55bn of that, with revenue growth of 22%. In a June update, Action’s like-for-like sales rose another 6.9% over 25 weeks, with 111 new stores opened.
Concentrated strength
Action now totally dominates 3i’s portfolio, making up around 70% of its total net asset value. That does concentrate risk.
The Europe-focused retailer continues to expand aggressively, opening its 3,000th store and making a strong start in Switzerland. It’s clearly got a proven model. But 3i’s CEO Simon Borrows warns that the “uncertain” economic and geopolitical outlook makes conditions more challenging. It also makes 3i more cautious about new deals. So Action looks destined to remain the star attraction for some time to come.
One to consider buying?
On 2 October, broker UBS upgraded 3i from Neutral to Buy and lifted its price target to 4,700p, about 10% above where it trades today.
I doubt 3i will repeat its recent stellar performance any time soon. Much of Action’s growth story looks priced in, and the stock’s valuation is demanding. The trust trades on a 60% premium to its net asset value, but that’s never deterred investors before.
Life has got tough for private equity generally, with higher borrowing costs and profitable exits harder to achieve amid investor caution.
It’s still been one of my best decisions and I plan to keep holding for decades. New investors might consider buying, but only if they understand what they’re getting — a highly successful private equity engine that depends heavily on one remarkable retailer.
