Seven&i Earnings: Moaty C-Stores Lift Profits; Awaiting Share Buyback and Restart of M&A Search

Narrow-moat Seven&i beat its interim profit targets as we had expected thanks to the continued strength of its moaty domestic C-store division (SEJ) and the profit rebound of its U.S. C-store business (SEI). Management has maintained full-year guidance given rising uncertainty over the U.S. economy and exchange rates. While its sizable downward revision of SEI’s 2023 guidance for same-store growth and gross margin looks negative, we deem the weakness temporary, which does affect our thesis that prepared food expansion will fuel SEI’s long-term growth. We view shares, trading at a 15% discount to our fair value estimate of JPY 6,800, as undervalued. Management plans to announce a share repurchase program at a size that we anticipate will be between JPY 30 billion and JPY 40 billion.