Pieter Slegers — Buying This Amazing Compounder: 3i Group
A purchase executed into the results-day selloff: $50,000 of 3i Group at a 2,300p limit, three days after the shares fell 14% on a slowdown at Action — at a discount to NAV the company has not traded at in twenty years.
One-line take: the purchase that closes a sequence running through four earlier issues — 3i priced at a small NAV discount on
21 April, ranked
Best Buy #2 on 3 May, formally added to the rated Buy list on
7 May, and bought here on
17 May, ten days later. The trigger is explicit and it is a price event, not a news event: results were published on the Thursday, like-for-like sales growth at
Action slowed to 2.4% from 6.8% (weak in France and Germany),
the stock fell 14% that day — "Mr. Market didn't react positively to the recent results.
That's exactly why we decided to buy the company." The underlying numbers were not bad: net income
£5,294m against £5,038m, +5.1%, EPS +3.3%. The case rests on two long-run facts:
NAV has gone from 279p to 3,030p since the current CEO took over in 2012, more than 1,000%, and Action's sales have grown
from €718m to €16,000m since 2011, roughly 25% a year. Against a
2,223p share price that is a
discount of almost 30% to NAV — the widest in twenty years — with the shares down 30.0% year to date. Management is buying too:
a repurchase programme of up to £750m. Terms:
$50,000, 1,700 shares, limit 2,300 pence, executed via Interactive Brokers. Total Quality Score
8.3/10 — the highest recorded in this batch.
1. Stocks & names mentioned
A single-name purchase post. Action is not separately listed — it is 3i's largest holding and is unquoted. Research legend: QT Qualtrim · SA Seeking Alpha · STK Stock Analysis. Written post with no timestamps — the At link opens the article.
| Ticker | Name | Research | View | What he said | At |
|---|
| III.L | 3i Group plc | QT · SA · STK | Positive | BOUGHT — $50,000, 1,700 shares, limit 2,300 pence, "on Monday", via Interactive Brokers. Four headline claims: "Grows by >15% per year", "one of the strongest management teams in history", "trades at a 28% discount to its intrinsic value", "actively buying back its own shares". Described as "an investment firm focused on mid-market private equity and infrastructure" at a 2,223p price and a £22.8bn market cap. The record: NAV from 279p to 3,030p since the CEO took over in 2012, more than 1,000%, driven mainly by Action, whose sales went from €718m to €16,000m since 2011 — about 25% a year. The entry: results day saw like-for-like growth at Action fall to 2.4% from 6.8%, weak in France and Germany, and the stock down 14% — while net income rose 5.1% to £5,294m and EPS 3.3%. Management announced a repurchase of up to £750m and said comparables get easier in the second half. "Over the past 20 years, the company has never traded at such a large discount as today." Total Quality Score 8.3/10. | read ↗ |
| private | Action (non-food discount retail, held by 3i) | — | Positive | 3i's largest investment and effectively the whole thesis: "This growth is mainly driven by its non-food retail chain. This chain has grown its sales from €718 million to €16,000 million since 2011. An amazing yearly growth rate of 25% (!)." The results-day setback is also Action's: like-for-like growth of 2.4% against 6.8% a year earlier, "mainly in France and Germany the growth was lower than expected", with management flagging some inflation from the Middle East but easier comparables in the second half. | read ↗ |
One reconciliation note: the headline bullet claims a 28% discount to intrinsic value while the body says "the current discount of almost 30% compared to the NAV" — and the 7 May model put fair value at 50.8 against a 25.7 price, i.e. 49.5% undervalued. The three figures are different measures (a discount to NAV is not the same as a discount to a modelled fair value), but they are presented in adjacent issues without being reconciled.
2. Talking points
The teaser structure, and what it reveals
- The post withholds the name for the first third and describes it only by attribute: "an investment firm focused on mid-market private equity and infrastructure", NAV from 279p to 3,030p since 2012, a non-food retail chain compounding sales at 25%.
- Worth noting that every one of those attributes is verifiable before the reveal — the identification is not the value being sold; the timing and the sizing are.
- The stated expected return is "well above 15%" a year.
Buying into the results-day fall
- The sequence is precise: results Thursday, shares down 14% that day, purchase announced for the following Monday.
- The reasoning is stated in one sentence: "Mr. Market didn't react positively to the recent results. That's exactly why we decided to buy the company."
- What justifies treating the fall as an overreaction: net income up 5.1% to £5,294m and EPS up 3.3%. The disappointment was confined to one line — Action's like-for-like growth.
The one number that actually deteriorated
- Action's like-for-like sales growth fell to 2.4% from 6.8%, with France and Germany specifically called out as below expectation.
- Management's mitigation is quoted rather than assumed: some inflation from the Middle East situation, but "comparables should get easier in the second half".
- This is the number to track. A holding company whose value is dominated by one asset is really a bet on that asset's same-store sales.
The buyback as management's own valuation signal
- "Management seems to think the stock is too cheap right now as they announced a share repurchase program of up to £750 million."
- Against a £22.8bn market cap that is roughly 3% of the company — meaningful for a holding company, and a direct statement about NAV versus price.
- The buyback is used as corroboration rather than as the thesis, which is the right order.
The discount, in twenty-year context
- "Over the past 20 years, the company has never traded at such a large discount as today" — with the shares down 30.0% year to date.
- The mechanism for a holding company is worth spelling out: you buy an underlying portfolio at less than its stated worth, and get paid twice if the portfolio grows and the discount narrows.
- The corollary is the risk: a discount is only an opportunity if the NAV mark is honest and the discount eventually closes.
The transaction, stated exactly
- "We are buying 3i Group for $50.000. This means we enter an order in the market for Q 1.700 with a limit price of 2,300 pence."
- The limit sits about 3.5% above the 2,223p quoted price — a working limit meant to fill, not a bid below the market.
- Executed via Interactive Brokers, in line with every other transaction in the archive.
3. In plain English
A jargon-free summary of the thesis behind each argued name. (Renders on each name's consolidated page.)
III.L — 3i Group plc Positive
3i Group is a London-listed investment company: it buys medium-sized private businesses and infrastructure assets and holds them. You are buying a share of that portfolio rather than a single operating business.
Almost all of the value sits in one holding — Action, a European chain of cheap non-food shops. Its sales have gone from €718 million to €16 billion since 2011, about 25% a year. Across the whole portfolio, the stated value per share has risen from 279p to 3,030p since the current chief executive took over in 2012, more than a ten-fold increase.
The purchase was triggered by a price fall, not by news. Results came out on the Thursday and the shares dropped 14% in a day because sales growth at Action's existing stores slowed to 2.4% from 6.8%, with France and Germany weakest. Everything else went up: profit rose 5.1% and earnings per share 3.3%. The reasoning is blunt: "Mr. Market didn't react positively to the recent results. That's exactly why we decided to buy the company."
The result is that the shares at 2,223p trade at roughly a 30% discount to what the portfolio is stated to be worth — the widest gap in twenty years. Management appears to agree, announcing a buyback of up to £750 million. If the discount closes and the assets keep growing, you get paid twice.
The purchase: $50,000, 1,700 shares, with a limit price of 2,300 pence. The number to watch afterwards is Action's like-for-like sales growth, because with one asset this dominant, 3i is largely a bet on that single figure.
Summary derived from the archived Compounding Quality post (text in transcript.txt) for personal study. Not investment advice. © Compounding Quality / Pieter Slegers for source material.