On Monday, Citi updated its stance on 3i Group PLC (LON:III:LN) shares, raising the price target to £38.50 from the previous £38.00, while reaffirming a Buy rating on the stock. The revision follows the company's first-quarter results released on Sunday, which met the firm's expectations. The adjustment in the price target reflects a recent increase in 3i Group's ownership in its portfolio company Action.
The company's increased stake in Action, rising from 54.8% to 57.6%, was acquired for £821 million. This acquisition is expected to provide a 2-3% boost to 3i Group's valuation, despite being slightly offset by foreign exchange movements. The valuation of 3i Group’s stake in Action has been adjusted upward from £31.00 to £31.20 per 3i Group share, contributing to the raised target price.
Citi's analysis indicates that the financial forecasts for 3i Group for the fiscal years 2025 and 2026 are largely influenced by the carrying value of Action and the dividends it provides to 3i Group. The firm has incorporated an anticipated £1.75 billion in dividends from Action into 3i Group's investment returns, leading to a meaningful increase in the earnings per share estimates for the specified years.
Action is a significant asset for 3i Group, accounting for approximately 80% of the company's current market capitalization. The company's performance and the dividends it yields are pivotal to 3i Group's valuation and future earnings prospects.
The updated model and price target by Citi reflect the latest developments within 3i Group, including the increased stake in Action and the expected positive impact on the company's earnings and valuation. The Buy rating suggests continued confidence in the investment firm's performance.
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