7-Eleven PH (SEVN) burning cash is not the all-weather profit machine it is thought to be

Philippine Seven Corporation (SEVN) the operator of 7-Eleven convenience stores in the country is the largest convenience store network in the country.  SEVN has 2,930 7-Eleven convenience stores as of June 30, 2020 that is 10% higher than the same period in 2019.

SEVN’s attributes convey appearance of invincibility

At the end of 1H20, there are 2,222 7-Eleven stores in Luzon, 1,019 of which are in Metro Manila, 425 in Visayas and 283 in Mindanao. Franchisees operate 55% of its store base and 45% are company-owned.

SEVN is the only operator with the critical mass to build out proper supply chains in areas logistically unreachable from the greater Metro Manila area. It has fourteen (14) operating distribution centers (DC) nationwide. There are six DCs in Luzon, five in Visayas and three in Mindanao.

SEVN’s digital efforts have led to a more data-driven approach, incorporating elasticity to assortment and pricing. 

With all those attributes and capabilities, SEVN seemed to be invincible. SEVN’s appearance of invincibility was highly regarded by the market highly, putting a very high premium to SEVN’s share price.

SEVN burned cash amidst the pandemic

As COVID-19 ravaged on in the first half of 2020, SEVN’s appearance of invincibility was shattered.  It lost around 500 Million Pesos in the second quarter of 2020 erasing the profit earned in the first quarter of 2020.  It burned cash in its operations in the second quarter of 1.5 Billion Pesos.

SEVN is not what investors thought it to be – an all-weather ever growing cash generating platform.  Foregin institutional investors are reported to be owning 17.05% of SEVN as of June 30, 200 led by Arisaig Partners (Asia) Pte Ltd. with 79.23 Million shares or about 10.48% of SEVN.

SEVN is now trading well below the price it traded at the height of the market sell-down in March to April of 2020.  Market has gradually realized that SEVN is not what it is thought to be.  The 152  PE multiple may soon go down.

Disclaimer and Disclosure: This is an independent analysis for discussion purposes with the aim of giving stock traders and investors an independent view point. Accuretti Systems Inc. in the course of day to day trading may have own, or is considering buying or disposing, the shares of the companies mentioned in this commentary.

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