Leaving apart corporations which have been acquired or joined the index lately, 3i (LSE:III) has been the FTSE 100’s high performer during the last 10 years. The inventory’s up 670% since June 2015.

The underlying enterprise has been going from energy to energy and it isn’t displaying any actual indicators of stopping. 

What’s 3i?

3i’s a non-public fairness agency with a distinction. Since 2015, the corporate has targeted on investing its personal money as a substitute of elevating capital from buyers – and the outcome has been transformative.

The massive benefit to that is it permits the agency to take a position by itself timeline. Slightly than having to deploy capital when costs are excessive, it may possibly watch for alternatives to current themselves.

3i’s largest funding is in a enterprise referred to as Motion – a European low cost retailer. This makes up round 66% of the FTSE 100 firm’s funding portfolio and it’s a key a part of its success.

Since 3i invested within the firm, Motion’s outcomes have been excellent. And the encouraging factor for buyers is it’s probably not displaying any indicators of slowing down. 

At its AGM on Thursday (26 June), 3i offered an replace on Motion. And the retailer is placing up spectacular development numbers, with like-for-like gross sales up 6.9% within the first 25 weeks of 2025.

The retailer has opened 111 new retailers, growing its retailer depend by just below 4%. All in all, meaning the enterprise is rising nicely at a time when rivals have been beneath stress.

Dangers

It’s plain that 3i has been a terrific funding during the last 10 years. However there are some essential dangers to contemplate with the inventory.

Some of the apparent is the actual fact the agency’s non-public fairness portfolio is closely concentrated in Motion. That brings a threat, however I feel it’s one of many simpler ones for buyers to cope with.

3i’s portfolio is closely concentrated, however I feel I can offset this by diversifying my very own investments. The truth is, a lot of the companies I personal shares in are targeted on one business.

The larger threat, for my part, is valuation. 3i’s present share price represents a 50% premium to the (self-assessed) worth of its portfolio – which includes some pretty optimistic assumptions.

By way of Motion, the FTSE 100 agency values the corporate utilizing a price-to-EBITDA a number of of 18.5. Whereas that isn’t unprecedented for a retailer, it’s in the direction of the upper finish of issues.

In different phrases, 3i’s share price implies a 50% premium on a portfolio that’s already aggressively valued. If the expansion slows or alternatives don’t stop themselves, this might be a mistake.

Lengthy-term investing

There’s no query 3i’s share price represents an optimistic view of each the general agency and its largest funding. However it’s a view that has – to date – been justified again and again.

In 2024, the corporate’s portfolio generated a 26% return. Even factoring in a 50% premium, that’s nonetheless a horny 17% return for buyers. 

With Motion’s newest outcomes displaying no actual indicators of slowing, I feel there might be extra to come back from 3i shares. That’s why I feel it’s value contemplating and I’ve been shopping for the inventory for my portfolio.