3i Group PLC (LSE: III) shares climbed sharply by 10% to 2,499p after the private equity firm reassured investors about the performance of its prized holding, Action.
The FTSE 100 company made the disclosure ahead of its annual general meeting, revealing that European discount retailer Action posted like-for-like sales growth of 3.3% for the year to 21 June.
That figure represents a modest step down from the 3.6% growth recorded in the first quarter, and sits slightly below the company’s full-year guidance range of 4% to 5%.
Despite the marginal slowdown, the broader operational picture at Action remained broadly encouraging, with store expansion continuing at a healthy pace across Europe.
Action has opened 105 new stores so far this year, keeping the retailer firmly on course to hit its target of at least 400 new openings during the full year.
Chief executive Simon Borrows said Action is expected to deliver “a good quarter of profit growth,” providing further reassurance to investors who had grown nervous about the trajectory of sales momentum.
Borrows also noted that Action ended the period with a cash balance of €699 million, following a substantial €450 million dividend payout made in May.
The chief executive added that the rest of 3i’s private equity portfolio continued to perform in line with expectations, with steady underlying momentum across its wider investments.
The sharp share price recovery comes after a turbulent stretch for 3i, which had previously seen its stock reach an all-time high of close to 4,500p last autumn, fuelled by exceptional performance at Action.
Since those heights, the shares had retreated heavily, falling to two-and-a-half-year lows below 1,900p in recent months, making today’s rebound particularly significant for long-term shareholders.
Earlier in June, analysts at Citi suggested the market was implicitly pricing Action on just 2.2% medium-term like-for-like sales growth, pointing to how deeply pessimistic sentiment had become before today’s update.
The update appears to have caught investors off guard in a positive way, with the market responding swiftly to evidence that Action’s slowdown was less severe than the most bearish forecasts had implied.
Action remains by far the most important asset within 3i’s portfolio, and its performance continues to dominate how the market values the wider group as a whole.