UPDATE 4-3i asset values lag market surge, shares fall
* Net asset value rises 2 pct in Apr-Sept half-year
* Real economy performance fails to match stock markets
* Dividend 1p vs 3.8p in 2008
* Shares down 4.6 pct at 1151 GMT
(Adds CEO comment)
By Simon Meads
LONDON, Nov 12 (Reuters) - British private equity firm 3i Group (III.L) said asset values increased just 2 percent in the first half of its financial year as the real economy failed to keep up with rebounding stock markets.
Its shares led the list of UK blue-chip fallers, down as much as 6.5 percent, after it said net asset value per share (NAV) increased to 286 pence at the end of September from 279 pence end-March, towards the bottom of analysts' expectations.
"It is difficult to see what will drive the NAV in the short term; realisations are likely to be low for some time, with activity levels in the private equity market only slowly picking up," said Cazenove analyst Chris Brown in a note.
Cazenove said it was likely to adjust its new NAV target for 3i to 276 pence a share, down from 307 pence.
3i had been hoping to report clear evidence of an upturn, but has only seen clear signs of recovery in India and China.
"In a European context we are seeing that things have stabilised and a number of sectors are seeing positive earnings momentum; in Asia we are seeing positive earnings momentum," said Michael Queen, chief executive since the start of the year.
But any improvements would not filter through to valuations until March next year at the earliest, he told reporters on a conference call, with performance typically lagging behind as it used cautious methods to value its portfolio.
DEALS ELUSIVE
In light of the weak economic situation, 3i made no new investments in the first half, pumping just 190 million pounds ($315 million) into bolt-on deals for its portfolio companies, compared with 668 million over the same period of 2008.
The group's experience reflects that of the wider industry, which is investing little new money as company earnings remain tricky to predict and vendors fail to adjust price expectations.
But potential deal activity is picking up as debt appetite for well-priced mid-market deals slowly returns, said Queen.
"We are, in terms of work in progress, busier now than at any point in the last 12 months," he said.
A degree of realism is returning to vendors' price expectations, particularly in Europe, he added.
3i has about 2 billion pounds on its balance sheet to pursue new deals and about 1.25 billion pounds in commitments from third parties still available in its 2006 buyout fund, Queen said.
Asset sales outstripped investment over the period as the firm continued to dispose of non-core assets and booked 145 million pounds from the sale of its stake in oil and gas exploration and production company Venture Production.
Realisations were 507 million pounds, down from 597 million, as the group limited portfolio company disposals.
Non-core investments, mainly small minority investments in private companies, make up only 8 percent of 3i's 7.2 billion pound portfolio and will slowly be sold off, Queen said.
It declared an interim dividend of 1 penny, down from 3.8p the previous year. (Editing by Will Waterman) ($1=.6033 Pound)
