FTSE 100 major speciality finance 3i Group Plc is an Investment management company. Its areas of operation are categorised into three segments, which are private equity, infrastructure and debt management. The group has a geographical presence in Northern Europe, Asia/Pacific, United Kingdom and North America. However, Northern Europe and North America are their major investment markets. BlackRock Institutional Trust Company, N.A., Artemis Investment Management LLP, and Columbia Threadneedle Investments (UK) are the major institutional investors in the company. (Source: Thomson Reuters)

Key Statistics


Financial Performance – FY19 (£mn)

Source: LSE Fillings

During the period ended on March 31, 2019, the group has reported a total return of 18 per cent on the opening shareholder’s fund, against the total return of 24 per cent in the last year. Total return for FY19 stood at £1,252 mn against the total return of £1,425 mn in the FY18. In FY19, the group's private equity segment continued to perform well, with a gross investment return of 20 per cent or £1,148 mn. In a highly competitive private equity market, the private equity team took a cautious approach while deploying capital. Deployed proprietary capital stood at £332 mn, including two new investments. However, the group has increased their focus on Merger & Acquisition activity by their portfolio companies and in total, completed eight bolt-on acquisitions during the FY19 period, and most of them were self-funded. During the year, the group again took exposure in Scandlines to the tune of 35 per cent stake for a total consideration of £529 mn.

Their infrastructure business segment reported a strong performance during FY19 and generated a 33 per cent return for the shareholders.

Realisation remained stronger during the year at £1,242 mn or £713 mn post-deployment of £529 mn into Scandlines.

Diluted net asset value per ordinary share was 815 pence against 724 pence in the year-ago.

The board of 3i Group Plc recommended a second dividend of 20.0 pence, and together with the first dividend of 15 pence, the total dividend for FY19 was at 35 pence per share against 30 pence in FY18.

Stock Performance – 1 Year

Daily Price Chart (as on May 17, 2019), before the market close. (Source: Thomson Reuters)

At the time of writing (as on May 17, 2019, at 12:54 PM GMT), shares of LSE: III were trading 5.0 points or 0.46 per cent lower at GBX 1,082.50 against previous day closing price. During the past one year, the stock has touched a 52w high of GBX 1,093.50 and a 52w low of GBX 754.60 and at the current price level, as quoted in the price chart, shares were trading considerably above the 52w low price level. On a year-to-date basis, the stock has rallied around 40.6 per cent, and on a yearly basis, the stock was up by 11.65 per cent.
Despite having a strong share price rally, the dividend yield of the company stood at 3.22 per cent, which indicates it’s a good income stock as well.

At the current price as quoted in the price chart, shares were trading considerably above the 200-day moving average price, which indicates an uptrend in the stock and potential to move up further from the current price level.

However, the stock carrying a beta of 1.63, which reflects that volatility is high in the script against the benchmark index FTSE 100.

Valuation Methodology
   
 
 Conclusion
 Despite a challenging market condition globally coupled with uncertainties around the Withdrawal agreement, the speciality finance group has reported a strong performance in FY19. Reported net asset per share of 815 pence was around 12.5 per cent above the 724 pence reported in FY18. The group entered the FY2020 with a strong balance sheet and diversified investment portfolio, with strong growth potential and accompanied with decent defensive characteristics. During the past one year, the broader index FTSE 100 has delivered a negative price return of 6.04 per cent, whereas LSE: III was up by 11.65 per cent and also trading considerably above the 200-day, 60-days and 30-days moving average prices, which itself a favourable technical indicator for a stock. Therefore, based on the above rationale and valuation done using the above methodology, we have given a "Buy" recommendation at the closing price of GBX 1087.5 (as on May 16, 2019) with single digit upside potential, based on the 9.2x NTM Industry median Price-to-Cash Flow Per Share (approx.) on the FY20E Cash flow per share (approx.).
 
*The Buy recommendation is also valid at the current market price as on May-17-2019).
*All forecasted figures have been taken from the Thomson Reuters.

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