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3i shares suffer on NAV concerns

Despite 3i’s reduced debt levels and £2bn in dry powder, the market is showing concern that the value of its portfolio has not grown in line with markets in the last six months.

Shares in listed private equity investor 3i Group took a hit this morning as the group revealed lower than expected growth in net asset value (NAV).

NAV per share at £2.86 (€3.18; $4.73) was narrowly below expectations, according to analysts at stockbroker Oriel Securites, who had forecast an NAV of between 302 pence per share and 312 pence per share.

3i is ready for the upturn

Michael Queen

The note added that gains from realised and imminent sales were “weak” at £14 million and that gains from earnings multiples and earnings at underlying capital were significantly worse than expected at £145 million.

At press time 3i’s shares had dropped to £2.67 from £2.80, a decline of 4.4 percent.

“There is some concern among institutional investors as to whether the March NAV was subject to a deep enough cut,” one analyst told sister publication PrivateEquityOnline.

In a presentation to analysts this morning, chief executive Michael Queen was cautious about portfolio companies’ trading conditions.

“We have continued to be conservative in our valuation approach, anticipating further earnings falls where relevant,” he said. “But I am pleased to say that the portfolio is performing in-line with our expectations and a good indicator of this strength is that we have only had to invest £47 million in equity cures and provisions remain very low.”

Queen stressed that the group had successfully transformed its balance sheet, reducing its gearing levels from 103 percent in March to 31 percent as of the end of September.

The group’s efforts to reduce debt and raise cash have resulted in the firm having liquidity of £2 billion ready to invest when opportunities arise. “3i is ready for the upturn,” said Queen.