3i Group (LSE:III) had already been the the worst-performing stock in the FTSE 100 index over the past 12 months. But it fell another 4% today (19 October), taking the one-year drop to around 44%. 

Prior to all this, 3i was one of the UK market’s star stocks. Indeed, it’s still up 80% over five years despite this year’s crash. 

So what’s going on? And might there be an opportunity to consider here? Let’s explore further…

Double-edged sword

As a recap, 3i’s an investment trust focused on infrastructure assets and private companies. It typically takes controlling stakes in businesses, works with management to grow sales and profits, then seeks to sell investments at an attractive profit when the time’s right.

A portfolio holding 3i has created incredible value for shareholders, mainly due to Dutch ‘near-food’ discounter Action. When the firm first invested in 2011, it had 250 stores. Today, Action has more than 3,500 across 15 countries and generated revenues of over €16bn last year. 

3i’s management says the discounter has some of the best retail store economics it has seen, with a large long-term growth opportunity ahead. As such, it’s continued to increase its stake over the years and the portfolio today is dominated by this holding (roughly 70% or more of assets).    

However, this can obviously be a double-edged sword if issues arise at Action. This is what’s happened, with slowing like-for-like sales growth. And because the retailer isn’t publicly traded, investors have marked down 3i’s shares to account for this.  

France

However, there’s another issue putting pressure on the stock: France. This is Action’s largest market and one where growth had already been slowing before recent protests descended into riots. 

At the weekend, more than 1,500 shops were looted and destroyed. Needless to say, this isn’t an ideal backdrop for Action’s sales growth across the Channel. 

And with more demonstrations planned for next month, then the bitterly contested presidential elections in the spring, that market’s likely to remain volatile for some time.  

Additionally, France’s public finances are in a bad state. If austerity measures are passed, this could hit consumer spending and spark yet more violent protests. 

With France already facing a difficult fiscal backdrop and the 2027 election approaching, the weekend adds another layer of political risk for markets.

Deutsche Bank

What to make of this? 

While France is a key market, Action’s growth extends well beyond it. In the six months to 28 June, it opened its first three stores in Sicily, taking the total in Italy above 240, and its 50th store in Slovakia. Another 400 locations are being added this year.

Here are Action’s first-half results:

In the first half, Action paid a £254m dividend to 3i, while third-largest holding 3i Infrastructure paid £18m. 3i stock currently offers an attractive starting dividend yield of 3.5%. 

Importantly, investors are now able to buy shares at a sizeable 23% discount to net asset value. Add in a strong balance sheet and an ongoing £750m share buyback, and I think this is an excellent Footsie buying opportunity to consider.  

Indeed, I think 3i’s currently on sale. That’s why I’m planning to increase my position in the stock.

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Ben McPoland owns shares of 3i Group.