I’ve had a lot of fun with my 3i Group (LSE: III) shares but I’m not enjoying myself today. I went big on the FTSE 100-listed private equity and infrastructure specialist in 2023, and it paid off. The shares rapidly rose in value making it one of the best performers in my Self-Invested Personal Pension (SIPP).
Today (13 November) I’m not so happy as 3i shares have dropped 15% so far after the board released half-year numbers.
I’m now looking at a four-digit one-day paper loss, the biggest ever in my SIPP. I’m not moaning as these things happen. And I’m still sitting on a healthy 72% gain.
I’m wondering if there’s a serious problem that changes the investment case. Or could this be a chance to buy 3i Group at a reduced valuation?
Strong numbers, lofty expectations
I’m not shocked by today’s drop. The stock has had a stellar run, up 266% in the last five years. It’s been more volatile lately, although it’s still up 20% over the last 12 months. Investor expectations are high and anything less than another mind-blowing return was always going to be punished.
Today, 3i reported a 13% increase on opening shareholders’ returns, which measures asset growth over the period, taking the total to £3.29bn. That’s an improved performance on last year, when returns jumped 10% to £2.05bn.
It ended the period with liquidity of £1.64bn, net debt of £772m and modest gearing of 3%. Nothing to worry me there.
The board paid the first-half 2026 dividend of 36.5p per share, set at 50% of the total dividend for 2025. I’ll get my share in January.
I imagine investors are spooked by the comments from CEO Simon Borrows who said 3i is cautious about deploying its capital into new investments, “mindful that both the transaction market and the wider environment are likely to remain challenging into the second half of our financial year”.
Today’s results also noted the “challenging macroeconomic and geopolitical backdrop across Europe and the US”. But didn’t we already know that?
This stock is expensive
One issue has been nagging me. The portfolio is totally dominated by its largest position, Dutch discount retailer Action, which now accounts for around 70% of the total asset value. That’s very high.
Action has been a roaring success, but it makes 3i very top heavy. Another concern is that the trust is very expensive, trading at a 54% premium to underlying value, even after today’s drop. That’s something I would normally steer clear of, though I made an exception here.
I’ve no intention of selling. With luck, today’s dip will steadily reverse. One-year broker forecasts, obviously prepared before today’s results, set a price target of 4,642p. That’s 20% up from today’s figure, suggesting there could be a buying opportunity here.
I’d consider buying more, except that I’m a little bit too exposed to 3i’s fortunes, as today’s drop confirmed. But investors who have been waiting for their moment to buy the trust should consider this one.
The shares aren’t without risk, and investors should aim to hold for a minimum of five or 10 years, and ideally longer. 3i Group has a proven track record since 1945 and now could be a good time to think about taking the plunge. Expect volatility though.
