The dire performance of 3i’s share price, which has lost 42 percent of its value in the last month, is down to excessive leverage, scepticism over the portfolio valuation and concerns about funding, according to analyst research.
In a note to clients this morning JPMorgan Cazenove analyst Chris Brown said that in order to increase its stock’s rating, 3i should realise assets “where it can at good prices” and avoid making any new investments “no matter how tempting”.
Estimated at around 56 percent of net asset value, 3i’s leverage is “high relative to the listed private equity sector, where most companies are holding net cash”, said Brown.
“There is clearly a risk that 3i – like any geared company – could go bust if current conditions persist for several years and refinancing is no longer possible, but we believe the most likely scenario is that the company survives and its NAV recovers from the low point it has yet to reach,” said Brown.
Meanwhile the Financial Times this morning reported speculation that two large 3i shareholders have been offloading stock, compounding the share price devaluation.
At the beginning of the year 3i’s shares were trading at £10.05. This morning they opened at £2.46 per share.