Divestiture of Department Stores to Accelerate 7&I's Moaty C-store Growth

Nikkei’s reporting of potential divesture of the struggling department store business has sent narrow-moat 7&I’s share prices higher as the slow restructuring progress has been a major frustration for investors. According to Nikkei, 7&I is hoping to sell the business for at least JPY 200 billion, compared with the book value of about JPY 160 billion composed of mainly land and buildings. We estimate the divesture will lift our fair value estimate by nearly JPY 200 to JPY 5,600 at a transaction price of JPY 200 billion. The bidding process is said likely to take place in February 2022 with at least a couple of foreign private equity funds participating. We believe values of properties including land of four store locations in the Greater Tokyo area will decide the selling price.