On Friday, Citi updated its stance on 3i Group PLC (LON:III:LN), increasing the price target to GBP41.40 from GBP38.50 while retaining a Buy rating on the shares. The revision follows the release of the company's investment portfolio key performance indicators (KPIs) and the annual capital markets seminar held earlier in the week.
The firm's analyst cited the rationale behind the price target change, noting a 3% rise in the estimated Action EBITDA, bolstered by a quarter three (Q3) like-for-like (LFL) growth surpassing expectations. Additionally, the Q3 EBITDA guidance was 5% higher than previously estimated by the analyst. Looking ahead, the analyst expects a 10.1% LFL growth for 3i Group in 2024, an increase from the 9.5% forecasted before.
The positive adjustment in the growth outlook is based on the belief that LFL growth will sustain at higher levels for a longer period than the market has predicted. This assumption is supported by the analysis presented in the July 1, 2024, report titled "Deep Dive on Action: still lots to play for," which suggests a bullish scenario for the company's growth prospects.
The increased price target also reflects an upward revision in earnings estimates for Action, one of 3i Group's portfolio companies, and a 20 basis point decrease in risk-free rates since the last published report.
The valuation for 3i Group's stake in Action now stands at GBP33.90 per share, which is higher than the current trading price of 3i Group's shares, indicating a potential undervaluation according to Citi's assessment.
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