3i Group, the UK's largest listed private equity company, reported a strong year fuelled by the runaway success of Action, a Dutch discount retailer.

Action's rapid growth and profitability propelled 3i's total return to ￡3.8bn ($4.76bn), a 23% increase, and boosted its net asset value per share significantly.

Action, in which 3i holds a majority stake, emerged as the key driver of the group's performance.

The discount chain's net sales surged by 28% year-on-year to ￡9.72bn, with operating earnings surging even higher at 34%.

3i valued its stake in Action at ￡14.2bn, reflecting the retailer's dominant position.

This success also translated into a windfall for 3i staff, with a ￡735m payout linked to Action's performance.

While Action's success is a boon for 3i, it also exposes the business to a degree of concentration risk.

The retailer now accounts for a significant portion (72%) of 3i's entire portfolio.

Despite the wider slowdown in private equity dealmaking due to rising interest rates, 3i has remained cautious, focusing on reinvesting in existing holdings and refinancing debt at favourable terms.

Action, though unknown to many British consumers, boasts a massive footprint across Europe.

With more than 2,600 stores in 12 European countries, Action surpasses the market capitalisation of traditional British retail giants such as Tesco.

The secret to its success lies in its no-frills approach.

Action offers a carefully curated selection of everyday essentials, groceries, and seasonal items at rock-bottom prices.

This strategy, coupled with efficient bulk-buying practices, allows Action to undercut competitors by an average of 40%.

The company plans to triple its European store count in the coming years, with expansion plans targeting Portugal, Switzerland, Romania, and potentially the US and Asia by the end of the decade.

While Action's potential is undeniable, investors face a unique challenge.

Action itself is not publicly traded.

The only way to gain exposure to this retail giant is through 3i, which currently trades at a premium to its net asset value.

This premium reflects the market's recognition of Action's value, but also raises questions about future upside potential for 3i's share price.

Action's story challenges the notion that high valuations automatically equate to overvalued businesses.

The company's exceptional growth justifies its premium valuation to some extent. However, 3i's heavy concentration on a single asset introduces an element of risk.

For investors seeking exposure to Action's potential, 3i offers a unique, albeit complex, entry point.