Press Reports of Potential Investment Stake in Polish Convenience Store Operator Zabka Group

Research evidence excerpt

Press Reports of Potential Investment Stake in Polish Convenience Store Operator Zabka Group

UpdateMValuation Methodology and Risks

Seven & i Holdings (3382.T)

18.5x F2/28E EPS. We take into account the possibility of a slowdown in earnings growth,

particularly in North America, following the significant boost to earnings momentum in

1HF2/27 driven by higher gas prices, as well as the broader de-rating trend across the Japanese

food retail industry. Our target P/E corresponds to the average valuation level since 2023,

when the impact of Covid largely subsided.

Risks to Upside

The domestic and international convenience store business environment improves, and the

effects of self-help efforts exceed expectations, resulting in a profit level surpassing our initial

projections.

Risks to Downside

The domestic and international convenience store business environment deteriorates,

resulting in a profit level falling below our initial projections.

Zabka Group (ZAB.WA)

We derive our target price using a blended approach of 1) DCF, assuming a terminal growth

rate of 3%, a terminal operating profit margin of 6.8%, and a WACC of 9.3%, and 2) a target

PE of ~19.4x, a mixture of our view on the normalized earnings growth of the business, balance

sheet risks and liquidity considerations.

n Polish consumer recovery stronger than expected

n Digital offer uptake is stronger than targeted

n Better than expected cost savings / franchise margin control

n Consumer recovery is slower than expected

n Space expansion slower / less profitable than expected

n Difficulties in franchise recruitment weighing on space/ margins

n Regulation changes to franchise model

Morgan Stanley MUFG 3