Many UK shares now trade at what look like bargain prices after the FTSE 100 slipped 10% from its recent high. That puts it firmly in ‘correction’ territory (rather than a full‑blown crash).
A crash usually means a fall of 20% or more, so what we’re seeing is uncomfortable, but not unprecedented.
The obvious question is whether this is a short‑term wobble or the start of something nastier.
What’s behind the sell‑off?
Geopolitical risk in the Middle East has sparked a sharp global sell‑off as investors flee to safer assets like cash, gold and government bonds. Oil prices have jumped after disruption around the Strait of Hormuz, which raises fears of higher fuel and transport costs feeding inflation.
Those higher energy prices come just as the Bank of England was hoping to start cutting interest rates. So now markets are worrying that these much-needed lower rates may be delayed. Moreover, the latest round of US tariffs on cars and other imports has added another layer of uncertainty for global trade.
All things considered, a mild correction isn’t surprising. But corrections like this aren’t rare and often recover stronger. The Footsie climbed 13.5% in the year following the most recent 2022 correction.
For long‑term investors able to stomach volatility, they can provide opportunties to pick up quality UK shares at more attractive prices than usual.
One stock on my watchlist
One stock I’ve been watching is 3i Group (LSE: III), an investment company specialising in private equity and infrastructure. Its biggest holding — Europe-based discount retailer Action — has been a key driver of 3i’s strong returns in recent years.
In its latest annual results, net asset value (NAV) per share reached 2,542p and return on equity (ROE) was 25%. At the time, the price was up over 1,800% since it began restructuring in 2012.
But more recent results failed to impress, leading to a 20% dip. Here’s why I think the low price could be a value opportunity worth considering.
An undervalued income play
Using a discounted cash flow (DCF) model, analysts estimate the shares trade at 68% below fair value. This estimate’s supported by a forward price‑to‑earnings (P/E) ratio of just 4.25.
On top of that, the dividend yield’s increased to around 3%, adding income attraction to this traditionally growth-focused stock. Still, it has a 35-year payment track record and last year, the dividend was boosted by 19.7%.
However, it’s worth noting that 3i has a high level of non-cash income. So while the dividend appears well-covered by earnings, cash flow only covers about 50% of payouts.
Besides, as the Middle East conflict rages on, higher rates could hit consumer spending. That means companies like Action could see slower growth and lower valuations. If cash generation lags profits for too long, the dividend may be cut.
Final thoughts
3i Group has long been a favourite of mine and still looks as attractive as ever. It owns a collection of real businesses, has a strong performance record, and now trades on what looks like a bargain price.
Just remember that buying during a correction doesn’t mean prices can’t fall further in the short term. That’s why diversification matters. Holding a mix of shares from different sectors and regions reduces localised risk, and dividends continue to compound even if growth stagnates.
