3i shares fall on recent underperformance at Action

(Sharecast News) - 3i Group shares fell sharply on Thursday despite the company reporting another year of strong returns and announcing plans to buy back up to £750m of shares, as investors focused on a slowdown in recent trading at its key portfolio company Action.

The FTSE 100 company said total return for the year ended 31 March was £5.30bn, or 22% on opening shareholders' funds, compared with £5.05bn, or 25%, a year earlier.

Net asset value per share rose to 3,030p from 2,542p, including a 77p per share gain from foreign exchange translation.

3i's Private Equity business generated a gross investment return of £5.30bn, or 23%, compared with £5.11bn, or 26%, in the prior year.

Action remained the main driver of performance, generating a gross investment return of £4.51bn, or 25% on its opening value.

The retailer delivered 2025 net sales growth of 16%, like-for-like sales growth of 4.9% and EBITDA growth of 14%.

In the first three periods of 2026, ended 29 March, Action reported net sales of €4.01bn, up from €3.52bn a year earlier, with operating EBITDA of €498m, compared with €464m, and like-for-like sales growth of 3.6%.

However, the market reaction suggested investors were more concerned by the latest trading update, after 3i said Action's year-to-date like-for-like growth had slowed to 2.4% by 10 May, against a 6.8% comparable period last year, as seasonal categories underperformed due to cooler weather and consumer caution weighed on trading in France and Germany.

FMCG categories continued to trade well, while performance in the Netherlands, Belgium and Southern Europe was in line with or ahead of expectations.

Action had opened 69 new stores so far in 2026 by 10 May, and had a cash balance of €925m.

During the year, 3i increased its stake in Action from 57.9% to 65.4% through a combination of cash and non-cash transactions, including the issue of new 3i shares.

As at 31 March, 3i valued its stake in Action at £23.74bn, using an unchanged post-discount EBITDA multiple of 18.5 times.

The scale of the share-price fall also pointed to concerns over the valuation placed on Action, given the retailer's outsized contribution to 3i's net asset value and annual return.

Royal Sanders also delivered another year of robust growth, while 3i said there were several standout performers across its consumer and private label portfolio and resilience across its other sectors.

Private equity realisations included the sales of MPM and MAIT, which generated total proceeds of £542m and money multiples ahead of 3i's 2x return target.

The sale of MPM generated £395m of proceeds and a 3.2x money multiple, while MAIT generated £147m and a 2.8x money multiple.

The infrastructure business generated a gross investment return of £106m, or 7%, up from £52m, or 3%, a year earlier.

3i said the performance reflected a 5% rise in the share price of 3i Infrastructure, as well as dividend income.

During the year, 3i Infrastructure announced the sale of its largest asset, TCR, for proceeds of €1.1bn to 3i Infrastructure, representing a money multiple of 3.6x.

Scandlines generated a gross investment return of £55m, or 10%, supported by resilient leisure demand, although freight volumes remained softer due to weak economic conditions in Germany and Scandinavia.

Across the group, 3i received £1.9bn of cash proceeds from its portfolio during the year.

It ended March with liquidity of £1.86bn, net debt of £547m and gearing of 2%, compared with net debt of £771m and gearing of 3% a year earlier.

The group recommended a second dividend of 48.0p per share, subject to shareholder approval, taking the total dividend for the year to 84.5p, up from 73.0p.

Separately, 3i said it would start a share buyback programme of up to £750m on 14 May, with completion expected no later than 31 December.

The programme would be carried out by Barclays Bank, with shares bought in the market and subsequently cancelled, reducing 3i's share capital.

Before the company's 2026 annual general meeting, purchases would be limited to the existing authority granted at the 2025 AGM, which allows up to 97 million shares to be bought back.

Continuation after the AGM would depend on shareholder approval of a renewed authority.

"2026 was another good year for 3i with strong contributions from each of Action, the broader Private Equity portfolio and Infrastructure," said chief executive Simon Borrows.

"The market environment remains complex with heightened geopolitical risk from the unresolved Middle East situation in particular.

"As a result, we expect to see an increase in inflation over the coming months."

Borrows said Action continued to differentiate itself through "quality at the lowest price", adding that its growth was underpinned by a multi-year store rollout programme and compounding like-for-like sales growth.

"The announcement of our buyback programme reinforces our consistent focus on optimising value creation," he said.

"In addition, our focus on active asset management across the portfolio has served us well over many years and gives us confidence in our ability to continue to compound returns for 3i shareholders both this year and over the long term."

At 0856 BST, shares in 3i Group were down 18.46% at 1,974p.

Reporting by Josh White for Sharecast.com.

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