Private equity business drives strong first half for 3i

Private equity and venture capital company 3i reported a “strong” first half on Thursday, with a total return of £1.14bn, or 15% on opening shareholders' funds, up from £767m or 10% year-on-year.

The FTSE 100 company said its net asset value rose to 905p at the end of the period on 30 September, from 804p at the end of March, after paying a dividend of 17.5p per share in the period and a 12p-per-share negative accounting impact from the further de-risking of the UK defined benefit pension plan.

It said its private equity business delivered a gross investment return of £1.25bn, or 19%, up from £666m or 11% in September 2019.

That was supported by continued earnings growth and cash generation in portfolio companies operating in the consumer, e-commerce, healthcare and business services sectors, and a “sustained recovery” in its retail investments, following the lifting of Covid-related trading restrictions through the summer.

The company’s investments in the travel and automotive sectors continued to experience “challenging” conditions, the board said.

3i said the performance of its investment in the retailer Action through the Covid-19 pandemic had exceeded its expectations, with strong like-for-like sales, EBITDA and cash flow growth.

That supported an increase in value of its stake in Action of £644m in the period.

At 30 September, the firm said it valued its 52.6% stake in Action at £4.27bn, based on a multiple of 18x Action's September run-rate earnings.

In its private equity business, the company said that in “challenging markets”, it maintained its selective approach to capital deployment, making one new investment in GartenHaus, while focusing on growing the existing portfolio.

It funded the acquisitions of Technogroup by Evernex and of SaniTech West by its bioprocessing platform, which it rebranded as SaniSure.

Private equity realisations totalled £82m in the period.

The firm’s infrastructure business delivered a gross investment return of £134m, or 12%, up from £88m and 9% year-on-year, which was said to have been driven by resilient performance across all portfolios.

Its 30% stake in 3i Infrastructure contributed “particularly strongly” to that return through a 17% share price increase since 31 March.

The Infrastructure business continued to contribute materially to the company’s operating cash profit, the board said, with fee income across the business of £19m, and dividend income from 3i Infrastructure of £12m in the period.

3i;s board set the first dividend for the 2021 financial year at 17.5p, in line with its dividend policy.

“Our thorough portfolio management processes enabled us to respond quickly and effectively to the challenges that arose as a result of the pandemic, including, more recently, decisive measures to address increases in infection rates across much of Europe,” said chief executive officer Simon Borrows.

“Encouragingly, most of our portfolio companies outperformed our rebased Covid-19 full-year outlook during the period.

“In this environment, we will remain disciplined in our investment approach and focused on enhancing the value of our portfolio through organic growth and value-accretive add-ons.”

At 0930 GMT, shares in 3i Group were up 2.49% at 1,111p.