I am relatively new to looking at 3i, so would appreciate any sage advice from the wise heads on this board. Is now a good time to consider investing? Of course I can drip-feed, but I'm considering selling up some other under-performing private equity holdings and switching a long-term lump sum to 3i.
I've previously been put off when I've looked at the trust through 2017 by the very large premium, but 3i has been range-bound for about 9 months now despite several NAV upgrades, and the premium has declined steadily to 30%. However the premium on this trust has been all over the place: it was close to zero as recently as 30 June 2016, but back up at 30-35% in the preceding summer of 2015, so market timing clearly matters.
For what it's worth, the charts are showing a similar degree of calm at the moment; there's no clear trend on MACD, RSI, CCI or momentum, but one of my favourite indicators, Intermediate KST, is turning and may be preparing to cross the signal line in a favourable direction. However this probably just reflects the long period of price stability rather than something one can use looking forward.
On fundamentals, the company seems very confident, in both the latest Annual and Semi-annual reports, and in the Q3 update on 1 Feb 2018, so I'm inclining to think I should just overlook the premium and go ahead and invest. However private equity SPs tend to be pretty lumpy, as the market responds to quarterly or semi-annual NAV updates and/or announcements about major realisations, so for all I know, I will sell my other PE shares at just the wrong moment!
Perhaps the best course would be to gradually sell down my other holdings and drip-feed into 3i after all . . .
One of my best performing shares since buying in Aug 2016 but SP not gone up over last 6 months. Looks like upward trend is coming back. Yield of 3.0% so overall return not bad recently despite lack of rise in SP.
The Technical Insight section for 3i on this website shows a Double Top and Megaphone Top on 15 November, with a target price of 819-833p.
I've been looking at buying 3i recently, but the hefty 40%+ premium has put me off; the charts at hl.co.uk show that the premium in the two years before 2017 was in the 10-20% range, even falling to a discount in the first half of 2016, and it was regularly at a large discount before 2012, presumably reflecting the recovery from the financial crisis of 2007-08.
I've read elsewhere that some of 3i's premium can be justified by business assets that are not fully reflected in the accounts, but I can't find any more information about this; do you know anything?
3i SP has slipped significantly from the October high, having dipped then bounced from the earlier Aug high.
I'm no TA specialist, but this looks like a double top dipping from 970 to 860, recovering to ~960 ish before falling through the 860 support. If so that suggests a price to fall from the 860 support by as much again as the mid top trough (ie ~110p), ie. 750p. I'd be grateful if a TA expert can advise on that.
That said and moving to fundamentals where I feel a little more comfortable, I see that the consensus forecast NAV for year end is 679, 12.4% up on the year.
EPS is ~106p down from 168p last year but that was flattered by currency and other one-off gains. 106 is on a good growth trajectory from 73p and 85p in YE 31st March 15 and 16. The FY 2018 and 19 forecasts have been continually revised up through this year. Based on the current estimates, even with zero growth from there on I would estimate fair value at 1050p on a DCF basis, which seems way too conservative a growth figure given track record.
3i trades at a substantial premium to the NAV so I guess will be hit hard if/when a major correction kicks in. Further strength in the pound would also hurt (but that risk could just as easily work the other way depending how Brexit plays out)
My feeling is that on a fundamentals basis, 3i is very undervalued (one of the most undervalued on my watchlist on DCF basis). Short term the trend may be to push SP lower. If SP does hit get near 750p as discussed above then I would think that could be a fantastic buy.
I have a small holding here and looking to increase significantly but will watch for now.
Broker Forecast - Barclays Capital issues a broker note on 3i Group PLC
By StockMarketWire | Thu, 1st June 2017 - 10:20
Barclays Capital today reaffirms its overweight investment rating on 3i Group PLC (LON:III) and raised its price target to 980p (from 750p).
"Earnings season in the UK doesn't have the same headline-grabbing appeal as it does in the United States. But make no mistake, hits and misses in UK corporate earnings command the attention of analysts and investors everywhere.Analysts of course, ..."
I hold 3i and Intermediate Capital ( up 14% TODAY ) both extremely well run professionally managed businesses, and I now have about 12% of my portfolio in these 2 babies, up about 280% in 3i and over 160% in ICP respectively with excellent yields to boot - I like Melrose too up 160% in recent years. All 3 are run by astute financial managers who are really good at what they do.
I sold out of 3i Group in January 2006 and only bought back on 22 August last year. Added to holding in September and January. Now 4.82% by value of my share portfolio. Since August SP has risen an impressive 35%, at yesterday's close, one of my best performing shares. I note that out of 44 companies I have shares in it is up the most this morning +1.7%. On top of that a yield of 3.1% covered 6.4 times.
From above Telegraph link, read in Business section yesterday:
"Market report: 3i enjoys best day in nine months on rating upgrade
Private equity firm 3i Group enjoyed its best day in nine months after Morgan Stanley singled out discount retailer Action as a star performer in its investment portfolio.
The US investment bank upgraded its rating from equal-weight to overweight and forecast underlying earnings growth of 16pc by March 2018 backed by a robust performance from Action, which is estimated to account for 40pc of 3is private equity portfolio.
Action has become the key asset in the 3i portfolio, analyst Geoff Ruddell noted.
In September 2011, 3i invested around £114m for a 43pc direct stake in Action. Since then, the FTSE 100 company has recouped around five times its original investment. Morgan Stanley estimates that its stake is now worth £1.4bn."
Broker upgrade I think:
"StockMarketWire.com - Morgan Stanley today upgrades its investment rating on 3i Group PLC [LON:III] to overweight (from equal weight) and raised its price target to 823p (from 710p)"
3i now one of my best performing shares. I used to have 3i shares years ago, 1st bought in 1995 but sold out in 2006 as they were not doing well then. Re-bought last Aug and built up holding with 3 further purchases. Proved to have been an share to buy and now my 5th largest holding by value out of 40.
"The third of our professionally run Â£100,000 hypothetical portfolios is being wound up after three years. The Balanced portfolio has been run by Roddy Kohn of wealth manager Kohn Cougar. He discusses his choices and reflects whether, in ..."
Was wondering why on an otherwise flat day 3i went up 2.55%. Found this article though I would not have thought a modest purchase of 3,000 shares (around £20K) would move SP of a FTSE 100 company. I suppose because Martine is a non Executive Director of 3i Grouip she is deemed to have inside knowledge so others followed he lead.
Yesterday trawled through larger Investment Trusts, Mkt Cap > £400m, after considering topping up my substantial holding of FCS. I used to have 3i Group shares until I sold out Jan 2006. Noticed they have been performing well recently, SP +60% in the last 24 months. A dividend yield of 3.0%. PE 7.3 and trend downwards. From their company report they now vest some profits from sales of investments as dividends. This results in erratic dividends but looks like an attractive investment to me. I have placed a limit order on to buy a modest number of III shares at maximum of 623p. Will see what happens Monday. As more cash becomes available in my ISA I plan to buy more. My largest share holding in ISA is ARM and much to my annoyance ARM management are proposing to sell out to Japanese company SoftBank. If as is likely sale goes ahead will have a lot of cash to reinvest.
Looks like sp is moving up to fill the gap down during the dark days of the crash ie 902p in Sept 08 down to 340p by Dec 08. Wont be a straight line (tho it looks like it at the moment!) but certainly seems to be heading back up to that plateau .....
Good post, ItD. Yes, £7 was a figure plucked out of the air, I confess. And, indeed, dilution queers the pitch a little but given sp has been as high as £25-ish, the portfolio 3i has, the sales it has made, the significant reduction in overheads, the global movement out of economic gloom that as you say will expose a true NAV much higher than on the balance sheet over recent years, and 3i's capacity and ability to make big profits from its investments, I think there is still growth potential. But we'll see, eh? Thr 14th should be interesting. As it is, with 10,000 shares at an average of £2.50, I will sell before ex-divi (£5.30+?) and buy back in August so divi isn't important to me. Not sure where "£30" came from; as said I think £7 is my "finger in the wind" prediction. Good luck with your investments. TC
"3i GROUPÂ (LSE:iii)Â are close to becoming interesting again for the longer term. We last glanced at them in August last year (link here) and are gratified it managedÂ to meet all our target levels. In fact, our major point of interest at ..."
OK, sort of see whee you're coming from but a few points.
Dividend yield: the most recent dividends were 5.4p final and 2.7p interim, i.e. about 1.6% on a £5 share price. They were accompanied with a special dividend of 7.9p and 3.3p which would would take us up to about 3.9% net which is still only 4.3% gross (not sure who actually counts it gross other than a company's PR people). That aside, when is a special dividend not special? In this case 3i state that they are returning to shareholder realised investments meaning there's a certain amount of self-cannibalisation going on - yeah, they are returning cash but through selling investments, therefore the remainder is smaller going forward. Then again, with 3i, that is their business and they have stated that they will continue to do so. Aside, the core dividend to which the board is committed ongoing is only 8.1p, anymore depends upon when and if so you shouldn't count on it as regular income.
Discount/NAV: always a difficult one with 3i. The last official count was the finals of last year, 14th May 2014 and a lot has happened in the meantime, not least of which being the market finally reaching new highs after 15 years (31/12/99 6930). Unlike 'normal' investment trusts 3i don't revalue their assets on a daily basis, indeed even the annual 'valuation' is highly dubious (conservative, low count) as many assets will be kept on the books at original cost - let's face it, 3i aren't investing for zero return which is what original cost price on the books implies. Me, I'm not reading too much into the current discount or where it is relative to historical trends as with, the FTSE100, 250, All Share (in fact just about every index you can think of) trading at new highs all the time, who knows what fair value on 3i's book actually is - maybe they do and maybe they'll tell us May 14th but even then it will still have lots of assets at original book cost.
As for an 'old SP of £7', well it's a nonsense number given the changes in the meantime. 2007 it was over £11 so why no use that number (14/02/07 my deal ticket says sell 556 @ 1123).....but then there waa massively dilutive rights issue June 2009. It was 9 for 7 at 135. The arithmetic is simple. Say you had 7 worth £3, your share of the company is worth £21. You take up your rights, pay 9*135 = £12.15. Now you have 16 shares in a company where you share is worth £33.15 (less a few expenses since Investment Bankers don't wok for free) i.e. those shares should be worth 207p ish - the value of your investment hasn't fallen by 1/3rd overnight but the SP has and comparing before and after is useless unless you can adjust appropriately (which almost no charts do)........... why not look at RBS and say it was over £25 at one point, ignoring the 3 for 1 share split, massive rights issues, near bankruptcy, a 1 for 10 consolidation - there were 2.5bn shares, now there are over 11bn (count the Bs as they are very, very real) so not really comparing like with like. My point? Just be very, very careful when looking at historical share prices and make sure you know/adjust for what's happened in the meantime.
So £5 doesn't sound outrageous to me - I might argue it feels a little toppy given the general circumstances all around. As for £30 in a few years, well whatever it is you're smoking it's clearly top quality gear.
Well, it's taken its time but finally broached the £5 resistance level. I suspect with the QE in europe, and the aggressive asset realisation strategy of the new(ish) regime at 3i, this is heading back to its old £7 sp - I'd say by mid-June 2016. Would then be a reasonable and fair PE rather than the paltry one currently .... and still some substantial divis to come! All IMHO, of course!
what do you think about the current SP premium over NAV which is extraordinarily high (+34%)? Certainly in the mid-to long term it could justifiable but do you think there'll be shorter term correction to bring it back closer to historical levels (+13%)?
I dunno about a 3 months play- couldn't advise you, but long term it looks like a brilliant investment capital growth + 5% div.
BTW historically director buys on the FTSE have a 1/3billion relevance to sp (David Hand RSS) ie no relevance at all on average! Against that individual companies/people have to be profiled.
Long term great IMO and it doesn't matter which industry rises or falls.
World economy has been depressed for 6 years and will rise with markets being worth 5 times what they are now in 10 years. I'm contrarian on this...most analysts have been screaming there's a bear coming. I dont think so because of tech infrastructure being pushed esp by machine intelligence, however scalps will be taken.
I took the liberty of visiting 3i's main office before sizing them up. They have less than 300 people world wide for huge revenues. That could backfire of course, but it's also slim with fewer salaries to pay out. Crowdfunding is OK competition but 3i brings essential experience an networking. 'A load of dosh and no directions' wont always work for developing companies compare that to experience: eg Sir Victor Blank knew how to move Lloyds to gobble up HBOS in the depths of the depression when everyone else was down sizing....breathtaking.
3i No brainer to me. and £30 a share in a few years as the sluggish economies get powered up is more than likely.
Merlin & Adam
Being an oil stock specialist without a clue about industrials - want to thank you for info re CEO buying iii shares = bullish. While the fundamentals have been good recently -I bought purely on chart analysis when in early October NAV & share price intersected at 365p (then sweated while it dipped to 352 before picking up) whereas in the recent past the NAV has acted as a support level. While iii has great fundamentals - even at 5% div yield stubbornly refuses to reach anything over 7-8 PE Ratio - oscillating between 440 and 455p (459 high) - whereas there are less distinguished companies with less EPS growth, worse Price/Book value ratios but trading a PE 20+. GRRRR. It seems that max differential between NAV & share price was 88p in the past but now reached 98p and refuses to break through 455-9p. Mr Buffet says - err sit tight fo10 years - yeah but sitting here just oscillating is tying up my capital when there may be faster growth to be bought out there. I plan to sell next time 455p resistance level is reached. What do you guys feel about iii near term 3month behaviour?
This is as good a reason as any to hang on to these in spite of the shares trading at a high and at a premium to stated net assets - my guess is that the next updated NAV is going to show a significant uplift with maybe another 'special' div on the way
"3i seems to have a knack for investing. This is good, given that it is a private equity company. Indeed, the shares performed well throughout the bout of volatility which ensued this past Autumn and are trading well above their net asset value of 358p. The company has reigned in costs to well below the income it earns on management fees and is cutting the number of companies that it is invested in, allowing for greater focus on those that remain. In the first half of this year to the end of September the firm decreased the number of its investments from 81 to 72 and another seven or eight might yet be discarded before year-end. Worth noting, 3i's chief, Simon Borrows, is not particulalry bullish on European equities. In any case, purchases for its portfolio of high-growth businesses was well-timed.
Offering a 3.7% dividend yield and a degree of capital growth, the stock looks like a good investment, "but I would not be rushing to buy at this level, so hold for now," writes The Times's Tempus."
Investors Chronicle is a bit like Manager of the Month - usually a kiss of death!
I do read it frequently, usually for the results/factual stuff but would never give the slightest bit of credence to any tip.........Mr Bearbull used to be pretty on the ball but the rest, well you might as well flip a coin. Brilliant at reminding readers about the buy/sell tips that have gone their way but comment on those they got wrong is conspicuous by it's absence.
iii is about a 2% net yield on the regular dividend but they have been paying specials as well....but then when does something you pay every time stop being special? Last dividends I have in my notes are 2.7p interim plus 4p special and 5.4p final plus 7.9p special. On the basis of the regular alone it's nothing clever but if they keep up the special dividends (which is their stated intention as they realise their assets) then it is indeed a cash machine. If that's what IC have picked up on then fine but 1) it's old news and 2) iii are effectively cannibalising themselves as they sell off their best assets. Still, shareholders funds are usually better off in shareholders pockets than lurking on a balance sheet waiting for a senior exec to squander them on some overambitious, usually ill-fated investment I find!
Me, looking the other way, hoping to offload part of my holding but at a slightly higher level.
Not an easy question as iii is such a different beast. A large part of the assets are in non-quoted companies, often with a long-term funding commitment so coming up with a value for such assets seems as much art as science - you can't just get closing prices from market, multiply by the shares owned, add them up then divide by your shares in issue like you can with many other investment trusts.
NAV quoted in last years finals (Y/E 31/03/14, published 14/05/14) was 348. Today the FT has it estimated at 362. Citywire is inline. Neither seems to have much of an axe to grind but both use a similar method, i.e. take the last published numbers and adjust it up/down according to how the market has moved in the meantime - using small cap, AIM and fledgling as the main indicator of change.
But the numbers iii publish in the 1st place? Yes, they are audited but there is a tendency to keep book value at original cost until it's blindingly obvious something's changed. A partial float of the underling, a partial divestment etc or simply a business that has grown/shrunk so much the original book value is clearly inappropriate..... but still not that easy to revalue. And when they do revalue they tend to do it conservatively.
The usual feeling is that the NAV iii publish in the interims and finals tends to understate the true NAV as many assets have not been recently revalued. By how much, us private investors will probably never know.
So, on paper, it usually trades at a premium to NAV but in reality probably at a discount.
"Â 3i Group (LSE:iii) celebrates the start of our alphabetical countdown of FTSE 100 components not included in our daily analysis. We notice it achieved our initial long term target of 414p earlier this year, managing to close above this point ..."
16:35:28 403.9p 23,483,317 £94,849,117 ? UT
probably some shorter closing position after ex dividend date, been part of FTSE 100 as from Monday hopefully, we should see the sp going up.
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