Investment Column: 3i is recovering – so buy if you feel brave

Evolution; Moss Bros


Our view: Tentative buy



Share price: 296.5p (+4.4p)

The recession was hard on 3i Group, Britain's largest listed private equity company. The share price plunged almost 86 per cent from pre-crunch levels to below 130p at its nadir at the start of last year, as debt-fuelled buyouts of companies were put on ice. Boss Philip Yea was ousted and the group had to call on investors for cash as it sought to slash its £2bn debt pile.

Since those dark days, however, business has perked up for a company whose multifarious investments include underwear chain Agent Provocateur and the Ministry of Sound entertainment business.

While management is not yet hailing a return to the boom times, the mood has perceptibly lightened as Mr Yea's replacement, Michael Queen, unveiled the company's pre-close update yesterday. To mark the new-found confidence, 3i announced it had closed its €1.2bn growth capital fund for investing across Europe, Asia and North America. 3i is pumping in €800m with the balance coming from external investors. The fund has already made its first investment – a 20 per cent stake in fruit juice maker Refresco.

In general, belt tightening is still the order of the day – the group invested just £311m in the 11 months to the end of February, compared with £898m the previous year. Management says the group has also reduced debt by a further £115m to £528m. And Mr Queen says business performance continues to improve, prompting analysts from Evolution Securities to upgrade expectations for realisations by £100m. The analysts are waiting until March's numbers are out before looking at the net asset value of the portfolio, but there should be further room for share price growth as the performance of 3i portfolio companies improves with the wider economy. The question is how much. Still, we're tentative buyers.

Evolution

Our view: Hold for now

Share price: 119.88p (Unchanged)

On the surface, the markets seem upbeat. Look deeper, however, and it becomes clear that investors remain nervous. The world didn't end when Lehman Brothers went to the wall. But it did change. The banks were the first to be humbled and now it seems to be governments, with the credit markets crying foul over sovereign debt. Talk to traders and the nerves become apparent.

Given this uncertain backdrop, you'd think that a company like Evolution would remain cautious. But its chief executive, Alex Snow, appears upbeat, even bullish. His view is that the prevailing uncertainty "only goes to underpin the long-term stability that markets require to operate more effectively" and he wants to increase Evolution's risk appetite and potential returns. Good idea? Up to a point. Evolution has kept a leash on costs and has a solid balance sheet. It probably stands to benefit from a crackdown on bigger players. But then again, new rules and regulations may not prove as beneficial to it as some may hope.

The shares trade on a multiple of 13.3 times Arden Partners' full-year estimates, with the market seemingly ignoring the upside. But, given the uncertainties in Evolution's space, it's not as generous as it appears on the surface.

The shares have rallied recently and while they could look cheap this time next year, they could very easily go the other way. If you have some, it's probably worth holding to see how the market plays out but don't buy in at this time. Just hold on for now and sell on strength.

Moss Bros

Our view: Speculative buy

Share price: 22p (+1.5p)

The menswear retailer Moss Bros has been quick out of the blocks during the seven weeks since its financial year ended on 30 January 2010.

The group behind the eponymous suit hire business and the Moss fascia boasted a 15 per cent jump in underlying sales, partly driven by the changes it has made to its product offer, such as the introduction of shoes, new brands and larger suit sizes.

It also touted a healthy rise of 1.8 per cent in gross margins for the 52 weeks. However, Moss Bros did not pay a dividend again and it was unable to give a clear signal of when the payout to shareholders might return. The retailer also made an adjusted pre-tax loss for the second year running, although the deficit of £3.9m was an improvement on the previous period.

The darkening clouds over the retail sector after the general election should serve as a further warning for investors. But given the company's strong balance sheet, and the problems faced by its rival Suits You, we reckon that, at just 22p, Moss Bros shares are worth a punt for those feeling brave and willing to take a long-term view. For investors with an appetite for risk, we rate the shares as a Speculative Buy.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Mortgage Advisor - OTE £95,000

£40000 - £95000 per annum: Recruitment Genius: This is an exciting opportunity...

SThree: Trainee Recruitment Consultant

competitive: SThree: Are you passionate about sales?Do you have a keen interes...

Recruitment Genius: Loan Adviser - OTE £30,000

£17000 - £30000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Day In a Page

Isis in Syria: Influential tribal leaders hold secret talks with Western powers and Gulf states over possibility of mobilising against militants

Tribal gathering

Influential clans in Syria have held secret talks with Western powers and Gulf states over the possibility of mobilising against Isis. But they are determined not to be pitted against each other
Gaza, a year on from Operation Protective Edge: A growing population and a compromised and depleted aquifer leaves water in scarce supply for Palestinians

Gaza, a year on from Operation Protective Edge

A growing population and a compromised and depleted aquifer leaves water in scarce supply for Palestinians
Dozens of politicians, bureaucrats and businessmen linked to Indian bribery scandal die mysteriously

Illnesses, car crashes and suicides

Dozens of politicians, bureaucrats and businessmen linked to Indian bribery scandal die mysteriously
Srebrenica 20 years after the genocide: Why the survivors need closure

Bosnia's genocide, 20 years on

No-one is admitting where the bodies are buried - literally and metaphorically
How Comic-Con can make or break a movie: From Batman vs Superman to Star Wars: Episode VII

Power of the geek Gods

Each year at Comic-Con in San Diego, Hollywood bosses nervously present blockbusters to the hallowed crowd. It can make or break a movie
What do strawberries and cream have to do with tennis?

Perfect match

What do strawberries and cream have to do with tennis?
10 best trays

Get carried away with 10 best trays

Serve with ceremony on a tray chic carrier
Wimbledon 2015: Team Murray firing on all cylinders for SW19 title assault

Team Murray firing on all cylinders for title assault

Coaches Amélie Mauresmo and Jonas Bjorkman aiming to make Scot Wimbledon champion again
Wimbledon 2015: Nick Bollettieri - Vasek Pospisil must ignore tiredness and tell himself: I'm in the quarter-final, baby!

Nick Bollettieri's Wimbledon Files

Vasek Pospisil must ignore tiredness and tell himself: I'm in the quarter-final, baby!
Ashes 2015: Angus Fraser's top 10 moments from previous series'

Angus Fraser's top 10 Ashes moments

He played in five series against Australia and covered more as a newspaper correspondent. From Waugh to Warne and Hick to Headley, here are his highlights
Greece debt crisis: EU 'family' needs to forgive rather than punish an impoverished state

EU 'family' needs to forgive rather than punish an impoverished state

An outbreak of malaria in Greece four years ago helps us understand the crisis, says Robert Fisk
Gaza, a year on from Operation Protective Edge: The traumatised kibbutz on Israel's front line, still recovering from last summer's war with Hamas

Gaza, a year on from Operation Protective Edge

The traumatised kibbutz on Israel's front line, still recovering from last summer's war with Hamas
How to survive electrical storms: What are the chances of being hit by lightning?

Heavy weather

What are the chances of being hit by lightning?
World Bodypainting Festival 2015: Bizarre and brilliant photos celebrate 'the body as art'

World Bodypainting Festival 2015

Bizarre and brilliant photos celebrate 'the body as art'
alt-j: A private jet, a Mercury Prize and Latitude headliners

Don't call us nerds

Craig Mclean meets alt-j - the math-folk act who are flying high