3i Slides, Posts Smaller-Than-Estimated Asset Value Gain

3i Group Plc, Britain’s largest publicly traded private-equity firm, fell by the most in more than 18 months in London trading after posting a weaker-than-estimated gain in the net value of its investments.

Net asset value increased 11.5 percent to 311 pence a share in the 12 months ended March 31, missing the 315 pence to 325 pence estimate of Iain Scouller, an analyst at Oriel Securities Ltd. in London who rates the stock a sell.

“Whilst this is a good return compared with recent years, given the strength of comparable mid- and small-cap valuations, we are surprised that 3i is not benefiting more from this,” Scouller said in a report to clients today. By comparison, the FTSE 250 Index climbed by almost 20 percent in the second half.

3i replaced its chief executive officer last year and began cutting costs after shareholders urged the firm to stop making deals and return money to investors. Activist investor Edward Bramson started building a stake in 3i five months ago. He became chairman of London-based F&C Asset Management Plc after criticizing the company’s strategy and ousting his predecessor.

The stock fell 4.8 percent to 345.80 pence in London trading, the steepest drop since October 2011. The shares have advanced about 59 percent this year, for a market value of about 3.4 billion pounds ($5.2 billion). 3i will pay a 5.4 pence final dividend.

Cost Cuts

CEO Simon Borrows, who said 3i is “clueless” about Bramson’s intentions, today increased the firm’s target for cost savings in the new fiscal year to 60 million pounds after exceeding his goals for reducing costs and borrowings in the previous 12 months.

The firm also said it plans to return more proceeds from asset sales to shareholders and work with partners, including an unidentified sovereign wealth fund, when making future investments.

“We have made significant and rapid progress in the turnaround of 3i,” Borrows said in a statement. “This represents a major step toward our objective of aligning 3i’s cost base with its annual cash income.”

The company reduced costs by 51 million pounds in the 12 months ended March 31, exceeding its 40 million-pound goal for that year. It had sought to eliminate 45 million pounds of costs by March 2014. Gross debt fell to 917 million pounds as of April 30, a 44 percent decline since March 2012.

Compensation Review

Borrows has curbed expenses by cutting 168 jobs and shutting six offices, including in Barcelona and Copenhagen. This year, he said he plans a “modest” reduction in staff numbers and will pay a greater proportion of senior employees’ compensation in deferred shares.

3i reaped 606 million pounds by selling assets, down from 771 million pounds in the year-earlier period. The private-equity firm agreed to sell plastics-equipment maker Mold-Masters to Milacron Inc. for C$975 million ($957 million) in February, ending a 5 1/2 year investment. It also sold Civica in May in a deal valuing the provider of specialist IT systems at 390 million pounds, including debt.

The company spent 172 million pounds on investments, compared with 464 million pounds in the preceding 12 months. In all, sales of 3i’s private-equity holdings generated a 49 percent gain over their opening book value, the firm said.

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