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Till just lately, my favorite UK inventory was personal fairness specialist 3i Group (LSE: III). It was my first buy to double in worth after I populated my brand-new SIPP in 2023. At one level, I thought of taking some revenue and decreasing my publicity to the FTSE 100 high-flier. Now I want I had.
The 3i share value plunged one other 19% this morning as full-year outcomes disillusioned. The shares peaked at 4,447p final October. At the moment, they’re at 2,014p, a drop of 54%. As ever when a portfolio holding suffers a pointy reversal of fortunes, I ask myself the identical query: ought to I purchase extra?
Is that this an unmissable FTSE 100 shopping for alternative?
Which will sound loopy and counter-intuitive, however shopping for on the dips can repay properly over the longer run. Instantly, there’s a hefty low cost on provide. Inevitably, there are dangers too. Worse, I noticed these dangers coming.
3i has been working a portfolio of firms since 1946, shopping for companies, funding them, constructing them up and promoting them on. At the moment, it’s largely a play on its most profitable holding, European non-food low cost retailer Motion.
The chain has unfold quickly throughout the continent and now has greater than 3,300 shops. It additionally makes up roughly 70% of the general 3i portfolio. That’s quite a lot of focus threat. My different fear was that Motion had grown so shortly that even the slightest trace of slowing momentum can be punished. That’s precisely what’s occurred.
We obtained the primary warning shot final yr. French development slowed, 3i shares slumped. At the moment’s outcomes for the yr to 31 March repeated the sample.
Should you’re anticipating a disastrous set of figures or a revenue warning, you’d be fallacious. 3i really reported a 19% improve in diluted web asset worth per share to three,030p. It additionally introduced a £750m share buyback. Chief govt Simon Borrows hailed “one other good yr”. So what’s the issue?
Whole return on opening shareholders’ funds jumped 22%, however that was down from 25% final yr. Motion’s web gross sales rose a strong 14% to €4.01bn within the first three months of 2026. Nonetheless, like-for-like gross sales development slowed from 6.8% to 2.4%. Cooler climate, more durable comparisons and Iran issues have been guilty. Shops in France and Germany struggled. The thrill has ebbed.
Has the sell-off been overdone?
I’m not going to promote my stake. These are tough instances for consumer-facing shares as inflation flares up, and I anticipate 3i to get well over the following few years. I do remorse turning into overexposed, although. It had grown into my largest single portfolio holding. Alas, now not.
Now right here’s what I believe is the most important attraction. In recent times, the funding belief traded at a hefty premium to underlying web asset worth, typically as excessive as 15%. At the moment, it’s at a 21% low cost. The subsequent yr might be bumpy, however I’ll be watching 3i intently. As an alternative of promoting, I’m tempted to purchase slightly extra. This inventory as soon as seemed costly. It doesn’t in the present day.
