Private equity and infrastructure investment business 3i Group (LSE:LON:III) is up around 1.6% at time of writing after posting an 18% total return of £1.25bn for the year to 31 March, a cautious market response to a cautious report.
Eye, eye This is lower than last year’s total return of 24%, or £1.42bn, but is still a strong performance. The group’s net asset value per share now stands at 815p, up from 724p one year ago, and that’s after paying 37p of dividends in the year.
3i makes its money through buying companies, building them up and selling them on, which means results can swing from one year to the next depending on factors such as disposals. This year its private equity business delivered a gross investment return of £1.15bn or 20%, driven by its biggest investment Action, as well as Cirtec Medical, Audley Travel, Aspen Pumps and Formel D. Realisations remained strong, with total proceeds of £1.24bn before reinvestments.
Tough times The group’s infrastructure business “had another outstanding year”, generating a total shareholder return of 33% due to good underlying portfolio performance and realisation from the sale of Cross London Trains (XLT) for £333m.
CEO Simon Borrows said the group will remain a disciplined investor in “very competitive markets” while warning of “significant political and market uncertainty and a growing tide of funds looking to invest in our markets”.
Proceed with caution 3i remains cautious as a result, and is careful about the pricing of new investments, while looking to deploy further capital in companies it already knows. That may partly explain the relatively sober market response to another strong year.
Kevin Godbold has admired the group’s dividend record, with payouts growing around 290% over the past six years, while its share price is up 175% over five years, thrashing the 6% return on the FTSE 100. Trading at 7.7 times forecast earnings, it is one of the cheapest stocks on the index, although the price-to-book ratio may be a better measure for this company and that looks a bit toppy at 1.5. Like Borrows, I’d be a bit cautious about the next year or two but the long-term still looks good.
Segro slows Warehouse property specialist Segro (LSE: SGRO) is another FTSE 100 company that has really outperformed, its shares rising 107% over the past year. This real estate investment trust provides big-box warehouses for online retailers and has a strong development pipeline with more than 40 sites under construction.
It has slipped lately, however, with headline rents and new pre-lets both falling, no doubt a sign of our slowing economy. As Roland Head recently pointed out, Segro has been using its funds to pay down debt rather than reinvest in the business, which suggests it could be concerned about slowing growth.
Wait a bit Its stock also looks worryingly expensive at a current forward valuation of 28.4 times earnings, while the forecast yield of 2.8% with cover of 1.2 isn’t enough to compensate.
Segro operates in what has been a strong growth area so it could be one to watch once the economic outlook becomes clearer, but as consumers retrench and Brexit drags on, there are better uses for your money right now, I reckon.
Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019