3i: Tuck It Away (Again)

3i’s 62% stake in Action drives the majority of its returns. The discount chain now has over 3,100 stores across Europe, adding 255 net new stores so far in 2025 and delivering 5.7–6.3% like-for-like growth year-to-date. LTM operating EBITDA to P9 stands at €2.3bn, with run-rate EBITDA at €2.54bn, reflecting continued momentum despite softer trading in France. Its growth has been consistent, with store economics so strong that management sees the capacity to triple the footprint across Europe, with further upside in the US and UK potentially to come. Action’s scale advantage and lean supply chain underpin strong margins and cash flows that flow directly to 3i’s bottom line.

Simon Borrows became CEO in 2012 and immediately cut back 3i’s sprawl, halved the portfolio, and exited third-party fundraising. Under his leadership, 3i’s NAV/share has risen from 279p to 2,542p. He owns ~£700m in stock and rarely sells, choosing instead to let the compounding do the work. Unlike most listed PE firms, Borrows focuses on a handful of high-quality investments (e.g., Royal Sanders) that compound over long holding periods. His discipline is reflected in realisations like MPM (3.2x MoM, 29% IRR), and in 3i’s unusually low overheads for a PE firm.

3i’s HY2026 results show a net asset value of £28.2bn and gearing of just 3%. It paid out a total dividend of 36.5p for the first half, up 20% YoY, and should continue increasing payouts as Action matures and expansion capex declines. Even without an IPO or sale of Action, the sheer cash generation potential will enable 3i to fund both new deals and rising dividends. With no external LPs to satisfy, all proceeds stay in the hands of shareholders.

• Action trading update: YTD LFL now 6.3% through P9; store roll‑out pacing ahead of plan with 255 net new stores by P10 and full‑year target raised to c.380 vs c.370 at March CMD; note October softening vs tough comps but holiday still decisive.

• Additional realisations: The recent exits of MPM (3.2x MoM, 29% IRR) and MAIT (2.8x MoM, 28% IRR) highlight ongoing monetisation discipline. Any further disposal at a premium valuation would signal continued strength in 3i’s portfolio and capital rotation.

• Geographic expansion: New country entries like Portugal and Romania are already in motion. Management has not ruled out UK or US entry, which could materially increase Action’s TAM and investor excitement.

• Rising income yield: With Action's capital requirements likely to decline as growth normalises, FCF will increasingly be available for dividends or special distributions. 3i’s dividend (currently 73p/share) is already rising sharply and may increase further.

• Next compounding assets: Royal Sanders and European Bakery Group are being nurtured as potential long-term winners. If either approaches Action-like economics or scale, the market could begin to price in future NAV drivers.

• Succession resolution: Clarity on who will succeed Simon Borrows could ease concerns around strategic continuity. A smooth handoff to a well-regarded internal candidate would reinforce investor confidence.

3i currently trades at a 30–36% premium to NAV. This valuation implies that Action's growth and broader portfolio performance will continue at a near-flawless pace. Any stumble, whether from slower store openings, macro headwinds, or margin compression, could prompt a re-rating. Additionally, peer retailers typically trade on lower multiples, meaning that any downward revision in the valuation multiple used for Action would materially impact 3i’s NAV and share price.

Action accounts for between 66% and 76% of NAV depending on the valuation basis. While the retailer has delivered stellar returns, this level of concentration exposes 3i to significant single-asset risk. Regulatory, competitive, or economic headwinds specific to discount retail, or simply a temporary slowdown in like-for-like growth, could have an outsized effect on group performance. Critics also argue that continued expansion in saturated markets (e.g., France) could limit future upside.

Simon Borrows has been instrumental in 3i’s transformation and long-term success. His capital discipline, strategic vision, and refusal to chase hot sectors have built credibility with investors. However, he is expected to step down in the near future, and there is no publicly anointed successor. A leadership change could unsettle shareholders and raise questions about whether 3i’s highly concentrated, low-churn model will persist under new management.