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Shares in UK private equity firm 3i slumped on Thursday after the FTSE 100 group revealed slowing growth at discount retailer Action, the investment that has underpinned a transformation in its performance.
3i said at its interim results that sales growth at Action had weakened in October, particularly in France, which makes up a third of its total revenue. The group warned Action’s like-for-like sales growth for the full year could fall below its earlier guidance of 6.1 per cent.
3i’s shares, which have more than tripled over the past five years, were down 14.5 per cent in morning trading in London.
Investors have been closely watching the performance of Action following news last year that one of the short sellers who bet against Wirecard, ShadowFall Capital, had built a short position against 3i because it believed the retailer was overvalued.
Shares in 3i, Britain’s oldest private equity firm, have in recent years become a proxy for Action as the value of the budget European store chain ballooned to make up almost 80 per cent of the firm’s private equity portfolio.
Like-for-like sales at Action, which trades from more than 3,000 stores across continental Europe, have grown by 5.7 per cent in the first 10 months of the year, 3i reported on Thursday, down from 6.3 per cent in the nine months to September. There were “softer seasonal sales this October”, the firm said, particularly in France.
Even as Action’s growth slows, 3i has increased its stake in the retailer to just over 60 per cent in September, by acquiring about 2 per cent of its equity from Singaporean sovereign wealth fund GIC, in exchange for 3i shares.
3i, which managed £39bn in assets as of March said Action’s full-year performance was resting on the upcoming crucial Christmas season.
Like-for-like sales growth at existing Action stores was “the metric that’s been in focus”, one private equity analyst said, because it was one of two key drivers of Action’s growth alongside the opening of new stores.
“October has turned out worse than people were thinking” and “people are trying to work out how much we extrapolate the October result as indicator for November, December or next year,” the analyst said.
The hedge fund questioned the extent to which the retailer, whose value grew by £2.1bn to £21.5bn in the six months to the end of September, could further expand in France.