3i Group, the British private equity investor that is undergoing a drastic restructuring, raised its cost-cutting targets and promised to press ahead with asset disposals this year after the value of its assets rose 11.5 per cent last year.
The group said on Thursday it would aim for £60m in operating cost reductions by March 2014, from £45m planned initially and after already achieving £51m.
However, shares in 3i, which have more than doubled over the past 12 months, fell nearly 5 per cent to close at 345p after some analysts highlighted a challenging dealmaking environment.
“3i seems to have reverted to trade on about 10 per cent premium to net asset values, which was the norm before the financial crisis in 2008,” Iain Scouller, an analyst at Oriel Securities, wrote. “We think this is premature given the challenges that face the private equity industry today. These include a more difficult realisation market and more limited availability of leverage.”
The London-listed company, which owns lingerie designer Agent Provocateur, has cut 168 jobs – almost 40 per cent of its workforce – and shut down 6 offices last year in a move to appease shareholders unhappy with the discount at which the stock was trading then. Simon Borrows’s strategic overhaul, initiated when the former Greenhill banker took over from Michael Queen as chief executive a year ago, has led to a narrower focus of the company’s private equity operations on a few core markets mainly in northern Europe.
A 5 per cent stake built by activist investor Edward Bramson earlier this year has also fuelled speculation that there could be further hidden value in the company’s portfolio of assets, boosting the share price.
Mr Borrows on Thursday said the group received 49 per cent more than what it had marked in its book when selling assets in the past months. Recent disposals, which have included UK software maker Civica, healthcare company EUSA Pharma, London restaurant chain Giraffe and Canada’s Mold-Masters, have allowed 3i to more than double its initial investments, he said.
The group expects to increase proceeds from asset disposals this year after realising £606m last year, Mr Borrows told the Financial Times.
“We have realisation plans for most of the portfolio companies for the next 3 to 4 years and there’s quite a lot more to be done this year,” he said. “There are a number of things going on.”
New investments, however, have remained subdued, at £172m for the year through March, down from £464m the previous year, mainly because the group has been reluctant to meet sellers’ high price expectations in Europe, Mr Borrows said.
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