There’s no question about it, my favourite FTSE 100 stock is private equity specialist 3i Group (LSE: III).
How could it be anything else? It’s the first UK blue-chip to double my money since I started populating my self-invested personal pension (SIPP) two years ago.
I bought 3i Group shares in August, September, and October 2023 at an average entry price of 2,051p. I’ve been thrilled to see them steadily climb to 4,103p.
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However, now I’ve got a decision to make. I took a relatively big position in 3i Group, and today it’s even bigger. Almost 9% of my entire SIPP. If the 3i share price takes a hit at some point, I’ll feel it.
Should I cash in my 3i Group shares?
There’s an argument that no one should invest more than 5% of their entire portfolio in one single stock. So I guess I should sell for the sake of diversification. Yet I’m reluctant to wave this one goodbye.
However, I do have one concern. 3i’s impressive performance can be largely attributed to its significant stake in just one company: European discount retailer Action.
More than 72% of 3i’s portfolio is now in Action. Which means that around 6% of mine is. And it’s not a company and I know that much about.
While 3i invests in a spread of companies, they’re on a much smaller scale. The latest update was dominated by Action, with the board merely noting that “the majority of our remaining Private Equity portfolio companies are performing resiliently, despite a difficult macroeconomic environment”.
On 30 January, 3i Group reported that the retailer had “produced another outstanding result” with net sales up 22% to €13.78bn for the year to 29 December. Operating EBITDA jumped 29% to €2.08bn. It also paid 3i a £215m dividend.
And it expanded its footprint by adding 352 new stores during the year, bringing its total to 2,918.
This strong showing didn’t do much for 3i shares though, which barely shifted. This suggests investors have already priced in the positive performance, or maybe they share my concerns over concentration risk.
Can I find more Action elsewhere?
Analyst perspectives seem to reflect that. The nine brokers offering one-year share price forecasts have produced a median target of 4,253p. If correct, that’s a modest increase of just over 3.5% from today.
CEO Simon Borrows expects a strong full year and highlighted the group’s “well-funded balance sheet” with gross cash of £792m and an undrawn revolving credit facility of £99m. Gearing is a mere 2%. All seems well.
3i hasn’t just done well on my watch. It’s up 250% over the last five years, the best performer on the entire index, ahead of second-placed Rolls-Royce which grew 176% over the same timescale (Rolls is the easy winner over two and three years though).
The shares are up 68% over 12 months and 30% over three months, so it’s still rolling along.
I’m a long-term buy-and-hold investor but common sense dictates I take some of my winnings, to bring my stake back to 5% of my SIPP. I don’t really want to though. There are plenty of FTSE 100 stocks I’d love to buy right now, but they’ll have to go some to live up to my favourite.
