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Many investors only ever look at the big, well-known names in the retail sector. In doing so, they sometimes overlook companies that have one of the most successful retail growth engines in Europe in the background. Just such a case is the 3i Group.
The name is not initially familiar to many private investors. But anyone who takes a closer look quickly realizes that behind this British investment company is an investment that is massively changing the European discount market - . Action.
What is the 3i Group actually?
The 3i Group is a British investment company based in London. The business model is relatively simple to explain:
- 3i invests in companies
- develops them operationally
- increases their value
- and benefits in the long term from dividends and valuations
Basically, it works like a private equity firm, except that it is listed on the stock exchange and any investor can buy shares.
The crucial point:
The majority of the company's value is now attached to a single success story.
And this is called action.
Action - Europe's growing non-food discounter
Action has become an integral part of everyday life for many consumers.
The concept is simple, but extremely effective:
- huge selection of non-food products
- constantly changing articles
- very low prices
- simple, efficient stores
The assortment ranges from:
- Household goods
- decoration
- tools
- toys
- Office supplies
- Craft items
- Small electronic parts
The pricing strategy is reminiscent of a mixture of:
- Specialty store
- Dollar store model
- Discount store efficiency
The result: extremely high customer frequency.
The expansion of Action
Action has been growing at an impressive rate for years.
The chain now operates over 2,500 stores in Europe and opens hundreds of new locations every year.
Growth is particularly strong in:
- Germany
- France and
- Spain
- Italy
- Eastern Europe
The market for low-cost non-food products is huge - and Action has built up a strong position here.
Many stores achieve high sales shortly after opening.
Why this is so important for 3i
The 3i Group holds a majority stake in Action.
This means
- A large proportion of Action's profits flow indirectly to 3i.
- The enterprise value of Action is a key factor in the valuation of 3i.
So you could say:
Anyone who buys 3i is indirectly investing primarily in Action.
Growth + cash flow
The interesting thing about Action is the combination of:
- strong growth
- high profitability at the same time
Many retail chains are growing fast but earning little money.
Action manages both.
The reasons:
Extremely simple store structure
high turnover rate of products
favorable purchasing structures
low marketing costs
Dividend - An additional factor
In addition to growth, the share also offers regular dividends.
The 3i Group has continuously increased its dividends in recent years.
This makes the share interesting for two groups of investors:
- Growth investors (because of action)
- Dividend investors (because of the distributions)
A combination that you don't find very often.
The current price decline
The share price has recently fallen significantly.
Such declines are often caused by:
- general market weakness
- profit-taking
- short-term valuation concerns
Fundamentally, however, little has changed in the story surrounding Action.
Long-term investors in particular often see such phases as an opportunity to build up or expand positions.
Why many investors underestimate the share
The main reason is simple:
Most people know Action, but not 3i.
As a result, many investors do not even have the share on their radar.
Yet there is a very clear logic behind the investment:
- fast-growing discounter
- Europe-wide expansion
- solid cash flows
- rising dividends
Conclusion
The 3i Group is an interesting example of how you can invest indirectly in one of Europe's most successful retailers.
With Action the company has a growth engine that is far from having reached the end of its expansion in European discount retail.
The current fall in the share price could therefore be a time for long-term investors to take a closer look at this business model.
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