III: FY26 fine but Action recent LFL and Q1 EBITDA margin softer; ongoing competition concerns

Research evidence excerpt

III: FY26 fine but Action recent LFL and Q1 EBITDA margin softer; ongoing competition concerns

, which includes LFL sales growth of +3.6% yoy versus our

forecast of +3.8% yoy, and operating EBITDA was EUR498mn versus our forecast of EUR524mn, at a margin of 12.4% (-c.80bps

yoy) versus our forecast of -20bps yoy.

In terms of the wider private equity portfolio, 3i has stated outperformance in the consumer and private label sector, whilst other

sectors remain resilient.

3i has announced a £750mn share buyback, aimed at reducing share capital, intended for completion before the end of this

calendar year. We think this could limit the downside for III, but we expect this to be trumped by negative news on trading and

margin.

RBC Fundamental View

We note that, given the size of the holding, Action makes up a significant portion of the 3i Group investment case. We view Action

as a high quality retailer. However, it has significantly outperformed in recent years, and performance recently has been more in

line with the market. We think the outlook for discount retailers in Europe looks tougher now, given ongoing spending pressures

on low income consumers and higher competition. We are also cautious around an expansion into the US, as we think this may

take more time and investment than anticipated.

We expect recent geopolitical events to drive higher inflation, particularly in food, utility and transport costs, which will likely

disproportionately impact lower income consumers. We also note a challenging backdrop in France, Action's largest market (c.1/3

of sales). As a result, although we view 3i as a good, well managed business, we think the near-term performance may be below

market expectations. Hence, we have an Underperform rating.

All values in GBP unless otherwise noted.