Seven & i Holdings Earnings: Foodservice Growth Intact; Inflation Headwinds Dissipate by Summer

Narrow-moat Seven & i Holdings, or 7&i, again guides for slight profit growth, just a 2% increase in operating profit for fiscal 2024 (ending February 2025), given tough business environments for the domestic and US C-store operations in addition to a sizable increase in the groupwide investment and expenses. We consider the expense assumption aggressive and expect management to raise or beat the profit guidance. Meanwhile, we welcome its endeavor to review an option to deconsolidate the superstore business, although the plan to list the unit is likely to face a bumpy road ahead. After fine-tuning our assumptions and taking the 3-for-1 stock split into account, our fair value estimate is JPY 2,300 (previously JPY 6,800). The near-term inflation headwinds do not alter our view that transforming the US C-stores through foodservice expansion will drive 7&i’s midterm growth. We view shares, trading at an 11% discount to our intrinsic value, as undervalued.