When we recommended buying into private equity firm 3i Infrastructure (3IN) last summer at 315p we flagged the undervaluation of its portfolio, as shown by the sale of Dutch waste treatment and recycling firm Attero for more than 30% above its most recent valuation and 2.7 times the purchase price.
We stuck with our call even when the shares dipped to 290p in November on the basis the company’s ability to create value would sooner or later shine through, which it certainly has in the last six months.
WHAT HAS HAPPENED SINCE WE SAID BUY?
The company recently posted its results for the year to March 2024, beating its internal target of 8% to 10% NAV (net asset value) total returns for the tenth year in a row with an 11.4% increase to 362.2p per share.
There were no further realisations – or asset sales – but the firm’s investee companies enjoyed continued earnings momentum helped to a degree by a positive correlation with inflation.
None of its businesses are start-ups, and all have a significant presence in each of their markets, so 3IN’s management helps them grow, which could mean giving them the right capital structure, guiding them as they expand into new markets or assisting with bolt-on acquisitions.
A good example is ESVAGT, which originally provided offshore support vessels for the oil and gas industry but under 3IN’s stewardship has pivoted to offshore wind, a much faster growth market, making it a more valuable business when it comes time to sell.
WHAT SHOULD INVESTORS DO NOW?
We would sit tight as the market for private assets is really starting to heat up, creating what 3IN calls ‘a visible route to exit’ for some of its investments.
At the same time there are plenty of opportunities to continue increasing the value of its portfolio businesses as they expand and grow their earnings, creating a sustainable flow of money back into the company and allowing it to continue increasing its dividend as it has done again this year.
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
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