3i Group (III) shares jumped around 10% on Thursday after Chief Executive Simon Borrows reassured investors on trading at Action, the Dutch discount retailer that makes up around three-quarters of the investment portfolio by value.
Action delivered like-for-like sales growth of 3.3% year to date as at 21 June, ahead of the 2% some analysts had expected. The retailer remains on track to open 105 new stores during 2026 and ended the period with €699m of cash after paying a €450m dividend.
With 3i owning a 65.4% stake in Action, the performance of the retailer largely determines sentiment towards the investment group. Strong trading lifts the shares quickly, while concerns over weaker consumer demand can have the opposite effect.
Action remains the key driver of 3i’s value
Full-year results in May showed 3i generated a total return of £5.3bn for the year to 31 March 2026, equivalent to 22% of opening shareholders’ funds. Net asset value per share increased to 3,030p from 2,542p a year earlier.
Action contributed most of that progress, producing a gross investment return of £4.51bn, or 25% on its opening value. However, growth slowed in France, where like-for-like sales rose just 1.3% compared with 7.2% across the rest of the business excluding the country.
That slowdown, combined with weaker German footfall during a period of wider uncertainty, pushed 3i shares from trading above NAV into a discount.
Shares still trade below portfolio value
At around 2,528p, the shares trade at roughly a 17% discount to reported NAV. For a business that has increased NAV per share by 986% over fourteen years, that gap has attracted investor attention.
The market remains divided. Some analysts have raised concerns that Action’s returns could moderate as it grows larger, while others believe the retailer still has significant expansion potential.
The central question is whether the discount reflects a realistic slowdown in Action’s growth or whether investors are underestimating how much further the retailer can expand.
Expansion creates opportunity but increases reliance
The long-term opportunity comes from Action’s store rollout, with management identifying thousands of potential new locations across Europe and a planned US entry towards the end of the decade.
However, the reliance on one company remains the main risk. If Action’s growth slows materially, 3i’s returns would be heavily affected.
The group’s balance sheet provides some protection, with net debt of £547m and gearing of just 2%. The £750m share buyback also suggests management believes the shares are undervalued.
Other investments, including Royal Sanders and the planned TCR exit at 3i Infrastructure, provide additional support, although neither has the same impact as Action.
The next test is Action’s durability
The latest update has eased some of the concerns that weighed on the shares earlier this year, but the bigger question remains whether Action can continue delivering strong growth as it expands.
For now, the valuation looks more balanced than it did before the rally. The upside depends on Action maintaining its momentum, while the downside comes from 3i being too reliant on a single retailer.