As 3i points out, the quoted private equity business has had a busy first quarter since the end of March. It has, since the beginning of the year, also seen a startling rise in its share price, which has limited the value of its dividend yield, one of the main attractions of the shares, to anyone buying now.
The shares rose another 1p to 935p on those first-quarter figures, which showed net assets per share growing from 604p to 628p and a total return to investors of 4.1 per cent. That may look hard to sustain, but the return in the 2016-17 financial year was a whopping 36 per cent.
The fund has whittled down the number of its investments from 134 in 2012, including a fair few dogs, to only 30. Almost all the top ten holdings made progress in the first quarter, although the stand-out, as ever, was Action, the Dutch budget retail chain, which is expanding quickly and increasing revenues and profits at 30 per cent or more each year. 3i has added four new investments since March, two already paid for, at a total cost of about £516 million.
It has agreed the sale of its stake in ACR, a reinsurance business based in Singapore, to a Chinese buyer. This is in the hands of the regulatory authorities there, but will bring in £180 million as and when the sale completes. There were two disposals completed, bringing in a total of £107 million. It has since sold Memora, a funerals business in Spain and Portugal, for £117 million.
There are also two new infrastructure funds added, to run alongside the well established 3i Infrastructure, with the equivalent of £57 million committed. In all this activity, any view of the cash balances is a moving target, but 3i shows no sign of running out of funds.
The shares are close to their recent high point, although 3i, a much different beast then, did top £11 at the height of the dot-com boom in 2000.
Assessing the dividend yield is tricky because it pays a fixed amount and an additional sum based on investments and disposals over the year. The shares probably yield about 3 per cent.
Income-focused investors might consider taking profits and switching to better-paying funds such as 3i Infrastructure, but management’s record speaks for itself.
MY ADVICE Buy
WHY The dividend yield is significantly less attractive than it has been in past, but this reflects strong share price and portfolio performance
International Personal Finance
Time was International Personal Finance was the troubled twin of the more reliable Provident Financial, from which it was demerged ten years ago. The former had been hit by tightening regulation and how much interest it could charge on its doorstep loans across eastern Europe, especially in Poland, its biggest market.
Provident Financial now has its own well-publicised problems and IPF has withdrawn from Slovakia, Lithuania and Bulgaria, preferring to concentrate on its digital offering and Mexico. Poland remains uncertain. The halfway figures are tricky: take out the gains from those Slovakian and Lithuanian businesses in run-off and pre-tax profits in home credit rose from £49.2 million to £52.9 million, but this includes a £7.7 million currency gain and is before a £7.7 million exceptional cost from exiting Bulgaria.
Analysts were moving up their forecasts for the year and the shares, which gained 14p to 189¼p, now sell on about six times earnings and yield 6.6 per cent. That should provide some support, but until the situation in Poland is resolved, probably this autumn, the shares look set to stay where they are.
MY ADVICE Avoid
WHY Uncertainties will continue over Poland
Marston’s
The market seems to have taken against Marston’s. Admittedly, the pub sector as a whole has been sold off on the assumption that any squeeze on consumer spending will mean less spent down the pub, but Marston’s shares, at 145p in early May, lost another 5p to 116¼p after a respectable enough trading update.
The big question is whether a slowing of growth at its prime Destination and Premium pubs, which are more food-oriented, is down to the hot summer weather and an understandable reluctance by customers to tuck into hot roasts, or if it presages a general consumer slowdown. The weather certainly helped the more wet-led tavern and leased estate and the brewing side, where volumes were up by 4 per cent with a minimal contribution from the Charles Wells acquisition, completed at the start of June.
Marston’s is pushing ahead with its capital spending plans, which will cost £110 million this year to the end of September. The company insists that the debt is supportable and the return on investment is attractive. It expects pressure on margins, mainly from a higher wage bill as input costs are largely covered by hedging or on long-term supply contracts, but this should be covered by rises in sales.
Unusually, the company bought ten bars and pubs in the spring, but generally it relies on new build. The mix of food and drinks-led pubs gives some protection from the weather. The shares sell on less than 9 per cent of this year’s profits and yield 6.4 per cent. Worth holding for that income, although those consumer concerns may not go away.
MY ADVICE Hold
WHY Yield is good but doubts over consumer spending
And finally . . .
Shares in Staffline, whose core business provides workers for the logistics, food and manufacturing industries, have been undermined by fears that Brexit may choke off the availability of staff. The shares were tipped here at 855p in January on the belief that those fears were overdone and now trade at £11.90. Halfway figures suggest that the core business, Onsite, is indeed continuing to grow at the same rate as in previous years and that the £1 billion revenue target by the end of this year will be met.
