01:40 Thu 26 Jan 2012
No surprises as 'softening' earnings take a toll on 3i
Embattled private equity investment trust 3i has failed to surprise as it issued a lacklustre set of results that triggered a 4% drop in its share price.
Some of 3i's companies suffered the impact of the tough economic climate and the trust reported a slowdown in new investments.
'As we said in our November half-year results announcement, the operating environment is challenging given the deterioration in the macro-economic outlook and continued market uncertainty,' said Michael Queen, chief executive.
'Conditions have not improved since then, which has been reflected in a softening in the earnings performance of some of the portfolio over this period.'
3i dropped 7.4p, or 4%, to 177.6p in morning trading as its shares neared their 34-month low of 166.1p. Today's results will no doubt disappoint many of 3i's investors, who had hoped that the Queen would manage to turn the company's fortunes around.
Lack of new investments In its management statement 3i said it had only invested £82 million in the three months to 31 December, versus £448 million in the first six months of the year. There were a clutch of 'good' realisations from investment companies over the period under review, Queen said, adding that the value of these rose to £219 million from £105 million in the last quarter of 2010.
The group's balance sheet was also strengthened over the period, with cash, cash deposits and undrawn committed facilities increasing to £1.75 million, up from £1.68 million at the end of September, while gross debt was cut to £1.66 million from £1.72 million.
Mick Gilligan, head of equities at Killik & Co, said the group's increased exposure to infrastructure and debt management was likely to reduce volatility in its NAV going forward. 3i owns a 35% stake in investment trust 3i Infrastructure, which reported on Wednesday that its portfolio had continued to perform well.
Gilligan added that the reference to 'softening' earnings should not come as a surprise to 3i investors, adding that Killik remains a buyer of the stock diven its 4.4% yield.
According to Citywire's data, 39 is one of the most heavily discounted trusts in its sector. At Wednesday's close it traded at a discount to net asset value (NAV) of 36.6%. Over the 12 months to December its NAV per share has fallen -14.82% versus -8.36% by its LPX Composite benchmark.
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