Time to get a piece of the Action after 3i Group shares slump?

The sizeable premium on top-performing 3i Group Ord (LSE:III) narrowed a little today after an update showed its star holding Action not quite firing on all cylinders.

One-off store availability issues caused by a change to a new software system meant the European discount chain grew like-for-like sales by 6.1% in the first 11 weeks of the year.

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City analysts had forecast 9%, causing 3i shares to fall by as much as 8% to a low of 3,497p before a partial recovery to 3,618p by midday Thursday.

The price compares with a net asset value of 2,457p in 3i’s most recent results in January, having recorded another “outstanding” year for Action, with like-for-like sales growth of 10.3%.

Source: TradingView. Past performance is not a guide to future performance.

The success of Action since 3i’s initial €130 million investment in 2011 means the Amsterdam-based business represents about 65% of the total portfolio by value. It recently reinvested £768 million to increase ownership of the pan-Europe retailer to 57.9%.

As we disclosed recently, 3i has been the best-performing investment trust in the five years since Covid after an initial £1,000 more than quadrupled to £4,134 by the middle of February.

That record continues to draw strong interest despite the lofty premium and worries about the reliance on one company. FTSE 100-listed 3i registered as the fourth most-popular trust for interactive investor customers in February, while today’s fall in valuation also drew buyers as 3i ranked among the top 10 most-popular trades on our platform.

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Investors new and old will be encouraged that 3i has said the software issues affecting certain Action stores and distribution centres have been dealt with.

In a presentation to the City, 3i also set out guidance for 2025 showing that it expects the rate of like-for-like sales growth to strengthen towards the mid-to-high single digit range.

It has a net store opening target of about 370, which will take the portfolio above 3,000 after 352 sites were added in 2024 for a total of 2,918. The same formula is used in every opening, with a matching assortment for more than 90% of products.

Today’s briefing updated Action’s estimate of space potential in existing and identified in-scope countries in Europe to 4,850 stores, an increase of 500 from last year’s figure.

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UBS expects Action to deliver compound annual growth in earnings of 21% between 2024 and 2028, supported by like-for-like sales trending down to 7% a year but the margin expanding from 15.1% in 2024 to 17% in 2028.

The bank values Action at an implied 2026 calendar year multiple of 29 times earnings. It says this is towards the upper end of the peer group range but “a fair reflection” of Action's superior growth track record. It has a Neutral recommendation and 4,600p price target on 3i shares.

Within today’s update, 3i said its semi-annual portfolio company review meetings showed its other long-term asset of personal care products firm Royal Sanders continuing to trade well.

It added: “The private equity portfolio more generally continues to make good progress against a difficult macro and uncertain geo-political environment with good performance across a number of 3i's larger investments.

“Overall, across the whole portfolio the performance in the initial weeks of 2025 was encouraging with only a small number still facing material headwinds.”