Is Private Equity And Infrastructure Group, 3i A Better Hedge Against Brexit (III)?

  • Feb 25, 2019 GMT
  • Team Kalkine
Is Private Equity And Infrastructure Group, 3i A Better Hedge Against Brexit (III)?

Overview

3i Group PLC (Ticker Symbol: III) is an investment management group with a key focus in Private Equity and Infrastructure, specialising in mid-market core investments in northern Europe and North America. The group is headquartered in London, United Kingdom with additional offices across Europe, North America, and Asia. It was founded in 1945 with a capital of £15 million, but today has grown to become a leading international investment manager. In 1994, the group was listed on London Stock Exchange and is currently a part of FTSE 100. 

Management

The Board is Chaired by Simon Thompson who was appointed as the Group Chairman in end of 2015. The current Chief Executive Officer is Simon Borrows and was appointed as the Chief Executive in 2012. The Chief Financial Officer is Julia Wilson.

Segments

The company's operations are segmented primarily under Private Equity and Infrastructure. The company recently introduced a new segment for reporting – Corporate Assets. Under Private Equity, the company focuses on investment and asset management primarily in northern Europe and North America to generate capital returns and typically invests in companies with enterprise value of €100 million–€500 million. The assets under management of this segment are £8.3 billion and proprietary capital value of £5.8 billion. Under infrastructure, three European Infrastructure funds and one India Infrastructure fund with assets under management worth £3.4 billion are managed by the company.

Key Financial Metrics (for six months ended 30.09.2018, in £m)

(Source: Company Filings

Key Financial Highlights – H1 FY2019        

  • The company reported a total return of £728 million for six months ended on 30th September 2018 against £655 million reported last year.
  • Private equity reported a gross return of £667 million in H1 FY2019. The growth was driven by growth across the group's larger investments. Also, the company reported two new investments worth £245 million (Royal Sanders and ICE).
  • Cash realisations of £1,057 million were reported in the first half of FY2019.
  • The company maintained its conservative balance sheet position with the ending net cash of £512 million.
  • The company reported an interim dividend of £15 pence, in line with the company’s new dividend policy announced in May 2018.

Ratios

(Source: Thomson Reuters)

Ratios Commentary

  • The company has reported an exceptional profitability position as compared to its peers. Moreover, profitability is gradually increasing over the years.
  • The net margin of the company is significantly better than its peers. Company’s return on equity is comparatively lower than other ratios.
  • The company’s liquidity position is better than the industry median as well, with a higher current ratio.
  • The company is less leveraged than its competitors. Further, the debt has been decreasing over the years.

Share Price Commentary

  • On 22nd February 2019, 3i share closed at GBp 953, up by 0.78 per cent against its previous day closing price.
  • Stock's 52 weeks High and Low is GBp 1,038.00/GBp 754.60. At the closing price, the share was trading 8.19 per cent lower than its 52w High and 26.29 per cent higher than its 52w low.
  • Stock’s average traded volume for 5 days was 1,366,824.20; 30 days - 1,487,166.57 and 90 days - 2,041,259.80. The average traded volume for 5 days was down by 8.09 per cent as compared to 30 days average traded volume.
  • On the valuation front, the stock was trading at a trailing twelve months PE multiple of 7.6x as compared to the industry median of 11.8x.
  • The company’s stock beta was 1.64, reflecting relatively more volatility as compared to the benchmark index
  • Total outstanding market capitalisation was around £9.27 billion and a dividend yield of 3.15 per cent.

Growth Prospects and Risks Assessment

  • Since the company’s investments are primarily located out of Britain, the company’s exposure to Brexit is limited. Hence, the company does not expect too much disruption from uncertainty regarding Brexit. The group’s operations are now regulated from Luxembourg as well to circumvent any post-Brexit regulations.
  • The company’s growth prospects seem favorable as can be seen with strong H1 FY19 reported numbers; reinvestment of 35 per cent in Scandlines; new private equity investments and acquisitions initiatives been taken.

Conclusion

With assets predominately in continental Europe, the company is not exposed to uncertainty from Brexit, which presents a great hedge against Brexit. The company reported good half-yearly results, further cementing the investors’ confidence in this tumultuous environment. Though the company has remained largely flat over the last year, investors can keep a watch on the company.

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