I’ve been researching investment opportunities in the Footsie and found companies with long-term growth prospects while considering valuation. Three FTSE 100 shares — 3i Group (LSE:III), RELX Group (LSE:REL), and Experian (LSE:EXPN) — stood out in my research. While these companies offer strong prospects, navigating the market and company risks is essential.
3i Group
3i Group is a multinational venture capital and private equity business, with headquarters in London. The company focuses mainly on Northern Europe and North America for investments, and has core operations in private equity, infrastructure and debt management.
Opportunities
In 3i Group’s 2023 press release, the company reported a 36% return on equity, down from 44% in 2022. Its private enterprise investments generated a 40% gross return, down from 47% in 2022. The price-to-earnings (P/E) ratio is currently 4.26.
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Major risk
The shares have seen major volatility until after the 2008 financial crisis. It is vulnerability during major recessions that I deem to be 3i Group’s biggest risk. Its strong weighting in North America and Northern Europe presents a low level of global diversification.
RELX Group
RELX Group is a multinational analytics company headquartered in London, serving customers in over 180 nations. The company’s main four sectors are risk, scientific/technical/medical, legal and exhibitions.
Opportunities
The company is harnessing AI and cloud computing, and is making investments in China and India, representing a forward-focused approach to developing industries and economies. The current return on invested capital in 2022 was 12.5%, up from 10.8% in 2020 and down from 13.2% in 2018. Revenue has increased from £7.4bn in 2018 to £8.5bn.
Major risk
The P/E ratio for RELX Group is currently 30.03, which is much higher than 3i Group’s 4.26, and presents significant concern of overvaluation. This creates less margin of safety and makes me more cautious about adding RELX Group to my portfolio at the moment.
Experian
Experian is a top consumer and business credit reporting and marketing company, collecting and aggregating financial data on over one billion organisations and individuals, with core services of credit reporting, credit scoring, fraud prevention, data analytics, and marketing services.
Opportunities
Experian uses machine-learning algorithms, placing it at the forefront of technological advancement and integration. Return on equity is at 19.39%, which is better than RELX, but not as good as 3i Group. Year on year quarterly revenue growth is 4.50% and profit margin is 11.63%.
Major risk
Regulatory concerns are a key major risk for the company, which could slow revenue growth over the long term. The company also has a P/E ratio of 41.24, presenting a high valuation, but one that is warranted by peer comparison to other technology and fintech companies.
Conclusion
Each of these companies presents good opportunities, but 3i Group takes the lead in my opinion in terms of long-term capital appreciation and security at good value. However, I am cautious about dedicating too large a percentage of my portfolio to 3i Group due to its limited global diversification.
