LSE:III - In 2011, 3i Group put £134m into a Dutch discount chain with about 250 stores in three countries and roughly €80m of EBITDA. That Business was Action. Fifteen years on, 3i owns 65.4% of it, and on 31 March 2026 the stake was valued at £23.7bn, about 77% of the group's portfolio. Few Private Equity deals have done as well.

The "how" is mostly patience. When Simon Borrows became chief executive in 2012, he cut back a sprawling, decentralised Investment house. That left 3i free to hold its best asset indefinitely instead of selling after the usual five to seven years. Action's dividends have largely paid for 3i to raise its stake over time. In practice, 3i now works as a listed, lightly geared holding in a fast-growing European retailer, with a smaller private equity and infrastructure business alongside.

The machine has not run smoothly lately. After trading at a premium of around 70% to Net Asset Value (NAV) in late 2025, the shares fell sharply in the first half of 2026 as Action's sales growth slowed.

How the business makes money

3i is an investment company. It makes money through rises in the value of its holdings, which show up in NAV, and through cash from dividends, refinancings and sales, which funds Shareholder dividends, Buybacks and new investments.

Action dominates both. In the year to 31 March 2026, it produced a gross investment return of £4.51bn, around 85% of the group total. It also paid £1.19bn in cash to 3i. The rest of the portfolio is mid-market private equity, including Royal Sanders, Cirtec Medical and Evernex, plus an infrastructure arm. Operating expenses were £135m in the year.

Recent performance

In the year to 31 March 2026, 3i reported a total return of £5.3bn, or 22% on opening shareholders' funds. NAV per share rose from 2,542p to 3,030p. The total Dividend went up to 84.5p from 73.0p, and the board announced a buyback of up to £750m, to be finished by the end of December 2026. The Balance Sheet stayed conservative, with net Debt of £547m and gearing of 2%.

Action's 2025 calendar year was strong. Net sales grew 16% to €16bn, operating EBITDA rose 14% to €2.37bn, like-for-like sales grew 4.9%, and it opened 384 net new stores. The problem was the start of 2026. On 14 May, 3i said like-for-like growth in the 19 weeks to 10 May was only 2.4%, with France and Germany flat. The shares fell more than 14% that day. Bernstein warned that investors might see Germany as "the next France".

The first-quarter update on 23 July was more reassuring. NAV per share reached 3,131p at 30 June 2026, a 3% total return for the quarter, despite a £276m foreign exchange loss. In the six months to 28 June 2026, Action grew net sales 14% to €8.35bn and operating EBITDA 13% to €1.11bn. Like-for-like growth recovered to 3.6%, and 121 net new stores took the estate to 3,423 across 15 countries.

Strategy and catalysts

At its Capital Markets seminar on 26 March 2026, Action said it aimed to open at least 400 net new stores in 2026. It also raised its estimate of room for growth in Europe to about 4,650 more stores. The biggest new idea was the US: the first American store is planned for the South-East around the end of 2027 or early 2028. Its 2026 guidance, set before the spring slowdown, was 4–5% like-for-like growth and a 14.8% EBITDA margin.

3i has also kept adding to Action. During the 2026 financial year, it bought about 5.1% from GIC in exchange for 51 million new 3i shares. It also reinvested £755m of the proceeds from Action's €1.74bn capital restructuring in October 2025 to buy a further 2.2%. Elsewhere, 3i realised €1.1bn from selling TCR at a 3.6x money multiple and exited MPM and MAIT for a combined £542m.

By 21 July, about 14.7 million shares had been bought for roughly £344m. The next landmark is the half-year results in November 2026.

Valuation talking points

3i values Action at 18.5 times last-twelve-month run-rate EBITDA, after a discount, unchanged on the year before. Supporters say this is modest for a retailer growing sales in the mid-teens. Sceptics say any slip in growth could push the multiple down, and with it most of the NAV.

Market sentiment has swung widely. By interactive investor's figures, the shares went from a premium of around 70% in late 2025 to a 23.5% discount by 30 March 2026. One market report in early August put the discount at about 17% after a better-than-feared Action update. That gap to NAV is arguably the main debate.

The bull case

  • Action sees room for roughly 4,650 more stores in Europe, before counting the US.
  • Growth held up even in a weaker 2026: sales rose 14% and EBITDA 13% in the first half.
  • Action's cash generation (83% cash conversion of EBITDA in 2025) funds 3i's dividends and buybacks without adding much debt.
  • Gearing of 2% and about £1.9bn of Liquidity give flexibility.
  • A share price below NAV, together with a £750m buyback, means repurchases add to NAV per share.

The bear case

  • Concentration is extreme. Action makes up around three-quarters of the portfolio, so 3i behaves more like one retail stock than a diversified fund.
  • Like-for-like growth has slowed, and France, Action's largest market, and Germany have been flat at times.
  • The US launch is a new execution risk. Singer Capital Markets estimates the cost at about 5% of annual EBITDA over four years and sees management distraction as the bigger worry.
  • The NAV rests on a private valuation multiple, which could be cut if growth disappoints.
  • Sterling strength against the euro can hit reported returns, as the £276m first-quarter FX loss showed.

The bottom line

3i's move from unfocused conglomerate to one of the FTSE 100's best long-term performers is largely the Action story. A £134m bet on 250 shops became a stake worth more than £23bn and a steady source of cash. The numbers so far in 2026 show a business that is still growing fast, but more slowly than investors had come to expect.

The case now rests on whether Action's growth recovers, whether the US works, and whether investors will accept such reliance on one private valuation. November's half-year results should shed more light.