Until recently, my favourite UK stock was private equity specialist 3i Group (LSE: III). It was my first purchase to double in value after I populated my brand-new SIPP in 2023. At one point, I considered taking some profit and reducing my exposure to the FTSE 100 high-flier. Now I wish I had.
The 3i share price plunged another 19% this morning as full-year results disappointed. The shares peaked at 4,447p last October. Today, they’re at 2,014p, a drop of 54%. As ever when a portfolio holding suffers a sharp reversal of fortunes, I ask myself the same question: should I buy more?
Is this an unmissable FTSE 100 buying opportunity?
That may sound crazy and counter-intuitive, but buying on the dips can pay off nicely over the longer run. Suddenly, there’s a hefty discount on offer. Inevitably, there are risks too. Worse, I saw those risks coming.
3i has been running a portfolio of companies since 1946, buying businesses, funding them, building them up and selling them on. Today, it’s largely a play on its most successful holding, European non-food discount retailer Action.
The chain has spread rapidly across the continent and now has more than 3,300 stores. It also makes up roughly 70% of the overall 3i portfolio. That’s a lot of concentration risk. My other worry was that Action had grown so quickly that even the slightest hint of slowing momentum would be punished. That’s exactly what’s happened.
We got the first warning shot last year. French growth slowed, 3i shares slumped. Today’s results for the year to 31 March repeated the pattern.
If you’re expecting a disastrous set of figures or a profit warning, you’d be wrong. 3i actually reported a 19% increase in diluted net asset value per share to 3,030p. It also announced a £750m share buyback. Chief executive Simon Borrows hailed “another good year”. So what’s the problem?
Total return on opening shareholders’ funds jumped 22%, but that was down from 25% last year. Action’s net sales rose a solid 14% to €4.01bn in the first three months of 2026. However, like-for-like sales growth slowed from 6.8% to 2.4%. Cooler weather, tougher comparisons and Iran concerns were to blame. Stores in France and Germany struggled. The excitement has ebbed.
Has the sell-off been overdone?
I’m not going to sell my stake. These are difficult times for consumer-facing shares as inflation flares up, and I expect 3i to recover over the next few years. I do regret becoming overexposed, though. It had grown into my biggest single portfolio holding. Alas, no longer.
Now here’s what I think is the biggest attraction. In recent years, the investment trust traded at a hefty premium to underlying net asset value, often as high as 15%. Today, it’s at a 21% discount. The next year could be bumpy, but I’ll be watching 3i closely. Instead of selling, I’m tempted to buy a little more. This stock once looked expensive. It doesn’t today.
