ANCTF - LRT Capital - Murphy USA: Expanding In A Consolidating Industry

• Murphy USA is a top ten name in our portfolio.
• MUSA's focus on high volumes of gasoline sales and a minimal amount of convenience store sales makes it unique.
• QuickChek acquisition will strengthen the company's food offering and expand its focus into larger store formats.

The following segment was excerpted from this fund letter .

Murphy USA Inc. ( MUSA )

We have held a position in Murphy USA for several months and have recently increased it, making it a top ten name in the portfolio.

The company is a gas station operator and was spun-off from Murphy Oil in 2013. Murphy USA operates 1,700 stores primarily in Walmart parking lot locations and owns the underlying real-estate.

What makes Murphy USA unique from other convenience store operators such as Casey's General Stores, Inc. ( CASY ) and Alimentation Couche-Tard Inc. ( OTCPK:ANCTF ), is the company's focus on high volumes of gasoline sales and a minimal amount of convenience store sales.

Fuel sales account for close to 60% of gross profit, a big difference from a typical convenience store, where fuel is close to 25% of profits. Most locations have a very small store of approximately 500 square feet only.

In December 2020, Murphy USA purchased QuickChek, a chain of 157 stations in the New Jersey and New York with an average store size of 5,500 square feet. which will strengthen the company's food offering and expand the company's focus into larger store formats.

The industry Murphy USA operates is attractive because of rising fixed costs of operations which are squeezing smaller and less well capitalized players leading to industry consolidation. While the advent of electric cars may mean less gasoline sales in the future, we continue to believe that the transition to electric vehicles will take a lot longer than most analysts believe.

The company has been using all available cashflow to repurchase shares, a value creating activity, as we view the shares as undervalued.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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