3i Group resilient through tough first half
3i Group reported a total return of £1.77bn in its first half on Thursday, or 14% on opening shareholders' funds, down from £2.2bn and 24% year-on-year.
The FTSE 100 firm said its net asset value per share stood at 1,477p at period end on 30 September, up from 1,321p at the end of March, including a 74p gain on foreign exchange translation.
It said its private equity business delivered a gross investment return of £1.97bn or 16%, down from £2.37bn and 27% year-on-year.
Discount retailer Action performed “very strongly”, as the company aiso saw strong earnings growth and momentum in a number of its portfolio companies in the value-for-money consumer, healthcare, specialty industrial and business and technology service sectors.
A “limited number” of investments had, however, seen a deterioration in performance as a result of cost pressures and reduced demand.
3i said 91% of its private equity portfolio companies by value grew earnings in the 12 months to 30 June, while valuation multiples were reduced for eight portfolio companies.
The company said Action's sales in the nine months ended 2 October grew to €6.1bn from €4.8bn year-on-year, with like-for-like sales growth “very strong” at 15.7%, and footfall “significantly ahead” of last year.
Last 12 months' EBITDA rose to €1.04bn from €765m, with the board reporting that Action was seeing strong sales growth across all countries and categories; with its margins “well-managed”, and “tight” operational cost control mitigating increased operating costs.
In competitive markets, the private equity team deployed £292m in four new investments in the period, as well as two portfolio bolt-on acquisitions and other further investments.
The company said that additionally, its portfolio companies completed three self-funded bolt-on acquisitions.
Realisations for the current financial year were “off to a good start”, with £193m of proceeds received in the period and a further £476m received in early October, following the completion of the realisation of Havea, which achieved a 50% uplift on its 31 March value.
Finally, 3i said its infrastructure business generated a gross investment return of £35m or 3%, down from £60m and 5% at the same time last year.
The company said it was seeing a “strong performance” across its infrastructure portfolios, with assets benefiting from defensive characteristics and positive correlation to inflation and power prices, although the return was impacted by a 12.4% decline in 3i Infrastructure’s share price, despite the 9.3% total return on its opening net asset value it achieved in the first half.
3i’s board declared a first dividend for the 2023 financial year of 23.25p per share, set at 50% of the 2022 total dividend, to be paid in January.
“This was a good half for 3i against a tough macroeconomic and market backdrop,” said chief executive officer Simon Borrows.
“We have carefully constructed our private equity and infrastructure portfolios over many years, with the aim of generating good returns for our shareholders across the market cycle.
“Over the past few years, there have been significant levels of investment in the private equity industry, at elevated prices and often with significant leverage.”
Borrows said that in contrast to a number of other private equity investors, 3i was “highly selective” in the new investments it made in 2020 and 2021, accounting for just 5% by value of its current investment portfolio.
“Action continues to exceed expectations as it expands across Europe and attracts significant new customer flow through very low prices and the flexibility of its category format.
“We are anticipating difficult macroeconomic conditions in 2023 which will continue to present significant challenges to the consumer and corporate sector alike and the group's conservative capital structure gives us considerable flexibility to respond to opportunities and developments as they arise.
“Our near-term decisions will remain guided by patience and discipline as we continue to deliver the significant growth potential of our existing portfolio.”
At 1036 GMT, shares in 3i Group were down 0.4% at 1,248p.
Reporting by Josh White for Sharecast.com.