Moaty C-Store Businesses Bolster Seven & i's Profits; Private Label and Fresh Food To Lead Growth

Narrow-moat Seven & i Holdings raised its full-year profit guidance to a level largely in line with our forecasts, thanks to a solid rebound in the same-store growth of the moaty domestic convenience store business (SEJ), firm fuel margins, and rigorous cost control in the U.S. C-store arm (SEI). The results echo our thesis that Seven & i’s capability to develop quality private-label products—a key moat source—and expansion of the fresh food business in the United States will lead long-term growth. However, growth for 2023 could be capped if currency or fuel margins turn into a headwind. We have maintained our profit projections but marginally raised our fair value estimate to JPY 5,700 per share from JPY 5,600 to reflect the increased time value of money and adjustment of capital expenditure. We view the shares as fairly valued.