Seven & i Holdings Co. Ltd. (3382.T) is the world’s largest convenience store operator and the fifteenth largest retailer in the world. Besides its popular 7-Eleven convenience stores, the company operates superstores, department stores (SOGO & SEIBU), specialty stores, and payment and financial services. Seven & i Holdings operates today more than 70 thousand stores in 18 countries. The company is on Forbes’ Global 2000 list.[mepr-active membership=”1734″ ifallowed=”show” unauth=”message” unauth_message=”Please login or purchase a membership to view full text.”]
Japan is Seven & i Holdings’ largest geographic market, accounting for almost 60 percent of the revenues and more than 70 percent of the profits. North America comes second with 39 percent of the revenues and 28 percent of the profits. The company’s convenience store business makes up 54 percent of the total revenues and 86 percent of profits. Seven & i Holdings is the market leader in the C-store business in Japan, with a market share of 44 percent in sales and 34 percent in stores nationwide. Seven & i Holdings’ other retail activities are less profitable. The financial services, mainly ATM operations, is the second key profit contributor after the convenience store business. Investments in digital strategies, including loyalty programs and mobile payment, are expected to be relaunched after a hacking scandal in 2019.
Seven & i Holdings was founded in 1920 and is headquartered in Tokyo, Japan. The company is listed on the main board of Tokyo’s stock exchange since 2005 and is a constituent of the Nikkei 225 index today. Its shares can also be traded in Germany and the US. Major shareholder is an undisclosed trust account at the Master Trust Bank Of Japan, Ltd. with an ownership of about 8 percent, followed by Ito-Kogyo Co., Ltd. with another 8 percent. Eighty-three percent of the shares are in public hands.
With over 138 thousand employees, Seven & i Holdings reported revenues of 4,277bn JPY (39bn USD) and profits before tax of 208bn JPY (1.9bn USD) the nine months ending November 2020. This is a decrease of 14 and 23 percent respectively compared to the same period a year ago. For the full fiscal year 2019/20, revenues decreased by 2 percent while profits increased by 9 percent. The decrease is mainly due to the ongoing pandemic. The operating margin of around 7 percent is well above industry average. Seven & i Holdings’ cash reserves decreased by one percent to 1,340bn JPY (12bn USD), while debts, bonds, and lease obligations have been reduced by 3 percent to 952bn JPY (8,684bn USD) over the nine months ending November 2020.
The company shows a stable balance sheet with good profitability and financial strength. The equity ratio is 46 percent, and the gearing, defined here as total liabilities to total equity, at an acceptable 115 percent. Moody’s latest rating revision of Seven & i Holdings has been A2 with an upgraded outlook from negative to stable. Next earning results will be announced in early April.
Seven & i Holdings’ shares are in an uptrend since last November and gained more than 40 percent in value since, 24 percent increase alone this year. The company is currently priced at 22 times earnings, 1.5 times book value, and seven times operating cash flow. The dividends yield more than 2.3 percent and have shown steady growth for over ten years. 13 out of 14 analysts currently have a ‘buy’ or ‘outperform’ recommendations on the stock.
Our conclusion: Seven & i Holdings shows a healthy balance sheet with good profitability and financial strength. The valuation is a bit high and comes with a compounded annual growth rate for revenues and profits of only 4.5 and 7.5 percent, respectively, over the last three years. But Seven & i Holdings has plenty of room to grow as convenience is king. The latest takeover of around 3,900 Speedway gas stations in the US could be just the beginning of a further global expansion as Japan’s shrinking population limits its potential in the domestic market.
The company has some strong brand names and is well-positioned in a strong competitive environment. Assuming a stable global economy, we expect the share price to increase 10 to 15 percent by the end of this year. Seven & i Holdings could also be a safe play in a time where many other investments seem to run hot right.
AIS Rating: ★★★★☆
| 2016 | 2017 | 2018 | 2019 | 2020 | 2020/21 Q1-3 Only |
|
|---|---|---|---|---|---|---|
| EPS (JPY) | 182 | 109 | 205 | 229 | 247 | 148 |
| Change (%) | (7) | (40) | 87 | 12 | 8 | (23) |
| DPS (JPY) | 77 | 90 | 90 | 95 | 99 |
| P/E | P/E INDUSTRY |
P/B | P/CF | Equity Ratio* (%) |
ROE (%) |
LIAB./ Equity** (%) |
Div YLD (%) |
|---|---|---|---|---|---|---|---|
| 22 | 19 | 1.5 | 7 | 46 | 7 | 115 | 2.3 |
* Equity / Total Assets, ** Total Liabilities / Equity
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