Murphy USA - Fundamental Investment Case (Trade closed on 1 November 2019)

Qualitative Concerns:

• Historical success tied to Walmart. With Walmart deciding to go its  own way, MUSA is forced to build on 3rd party sites. Results in  lower unit growth rate and more competition.
• C-store industry is changing in ways that are not favorable to  Murphy USA. Growth and differentiation coming from larger stores  that emphasize in-store offerings.
• In addition to Walmart trialing its own concept, Murphy’s faces  competition across multiple fronts that has risen in intensity
• Demand for fuel may be on a long-term secular decline. Vehicle  trips are falling and in the past MUSA has driven volume via new  store additions, which are slowing.
• Vision thinks this is a business that likely faces eroding EBITDA  margins over time. Contrary to flat estimates next year.
• Insiders dumped the largest number of shares in August in over 3 years. Included the CEO’s first ever sell worth ~$4mn

Fundamental Concerns:

• Fuel and merchandise sales are on a multi-quarter negative trend across both SSS and APSM
• Margins have been pressured this year due to lower fuel margins.  Last year competition was cited behind lower fuel volumes.
• Target leverage <2.5x to maintain share repurchases. Was  1.9x  MRQ. Have been utilizing cash and debt to pay for share  repurchases as FCF doesn’t cover.
• Trading at a premium to historical multiples