Measuring the Relative Financial Performance and Resiliency of the Downstream Energy & Convenience Retail Industries

April 30, 2020

Spencer P. Cavalier, CFA, Co-Head and John T. Mickelinc, Senior Analyst

Click here for a print-friendly PDF version

Introduction
On a quarterly basis, Matrix measures the financial performance of the publicly traded companies comprising the Downstream Energy and Convenience Retail “DER” Industries relative to the performance of the S&P 500 Index. These measurements provide a benchmark to compare the financial health, investment desirability, trends and equity returns of DER public companies versus the broader market.

The COVID-19 pandemic piqued our interest in deepening our performance measurements. In this analysis, we will compare the relative performance, volatility and resiliency of publicly traded stocks in the DER Industries as a whole, as well as by industry segment in times of economic confidence and uncertainty (i.e. bull and bear stock market cycles, respectively) relative to the S&P 500 Index. To measure the industry segments, we built indices for each of the three primary segments comprising the DER Industries, defined as follows:

C-Store Index: Companies primarily engaged in operating convenience stores;
Wholesale Fuels Index: Companies primarily engaged in wholesale fuels distribution; and
Propane & Refined Fuels Index: Companies primarily engaged in propane and refined fuels distribution.

The study period for this analysis is January 1, 1995 – April 1, 2020.

DER Industries’ Relative Performance and Resiliency
The DER Industries have persevered through many periods of uncertainty. The following are a few of the more notable ones:

Spanish Flu: 1918-1920
Great Depression: 1929-1941
Recession: 1937-1938
World War II: 1940-1945
OPEC Oil Embargo: 1973
OPEC Oil Crisis: 1979
Black Monday: 1987
Dot.com Bubble: 2000-2002
Great Recession: 2007-2009
9/11 Terrorist Attack: 2001

During the study period, the DER Industries’ publicly traded companies performed well relative to the S&P 500 Equity Index in periods of both confidence and uncertainty. The following graph (Exhibit I) illustrates the returns of each index relative to the S&P 500 Index from January 1, 1995 to April 1, 2020. During this period, the C-Store and Wholesale Fuels Indices outperformed the S&P 500 Index, while the Propane & Refined Fuels Index performed consistent with the S&P 500 Index. It had slightly outperformed the broad market for many years but regressed recently.

Next, we studied the absolute and relative performance and volatility of the DER Industries’ Indices in both confident and uncertain times. As mentioned, we define periods of confidence and uncertainty as bull and bear cycles, respectfully, that have occurred from January 1, 1995 to April 1, 2020. Our findings, shown in Exhibit II, reveal that the C-Store Index and the Wholesale Fuels Index have outperformed the S&P 500 Index in most bull and bear cycles, while the Propane & Refined Fuels Index has typically outperformed in bear markets (except for the current) and underperformed in bull markets.

We used beta as a measurement of each index’s volatility relative to the S&P 500. As a reminder, a beta coefficient can measure the volatility of an individual stock, index or portfolio in comparison to the systematic risk of the entire market. A beta value of less than 1.0 means that the security’s price is theoretically less volatile than the market, while a beta that is greater than 1.0 indicates that the security’s price is theoretically more volatile than the market. Our analysis revealed that the betas for each of the DER Industries’ Indices were less than 1.0. The C-Store Index’s beta during the measurement period was 0.60, implying the index was 40% less volatile than the S&P 500 Index. Beta does have its limitations in measuring volatility, but it remains a common metric used to evaluate systematic risk in a portfolio of stocks.

Finally, we felt that the current effect of the COVID-19 pandemic warranted further analysis as to how the DER Industries had recovered from past bear market cycles, in both absolute returns and relative to the S&P 500, for periods of one, three, and five years after the bear markets ended. Exhibit III below illustrates these returns for the time periods after the bear markets ending in September 2002 and March 2009. The results show that each DER Industries’ Indices achieved strong positive returns coming out of a bear market cycle, with the C-Store and Wholesale Fuels Indices recovery being superior to the Propane & Refined Fuels Index.

Conclusion
Overall, during the study period, the relative performance and resiliency of the DER Industries in its entirety and by segment were more impressive than even we had expected. This is a valuable reminder that our essential industries are not only vital to the economy, but companies willing to invest and adapt to changing consumer needs should reap generous financial rewards. We look forward to your feedback and questions.

Disclaimer
The contents of this publication are presented for informational purposes only by Matrix Capital Markets Group, Inc. and MCMG Capital Advisors, Inc. (“Matrix”), and nothing contained herein is an offer to sell or a solicitation to purchase any of the securities discussed. While Matrix believes the information presented in this publication is accurate, this publication is provided “AS IS” and without warranty of any kind, either expressed or implied, including, but not limited to, the implied warranty of merchantability, fitness for a particular purpose, or noninfringement. Matrix assumes no responsibility for errors or omissions in this presentation or other documents which may be contained in, referenced, or linked to this publication. Any recipient of this publication is expressly responsible to seek out its own professional advice with respect to the information contained herein.

Matrix’s Downstream Energy & Convenience Retail Group is recognized as the national leader in providing transactional advisory services to companies in the downstream energy and convenience retail industries.

Notes & Methodologies

Each index is equal‐weighted and comprised of daily dividend adjusted stock/unit prices, provided by S&P Capital IQ. The following public companies, which traded during a portion of or during the entire study period of January 1, 1995 – April 1, 2020, are included in the indices:
S&P 500 market index returns presented herein are based on daily dividend adjusted prices of SPDR S&P 500 ETF Trust (ARCA:SPY) as provided by Capital IQ.
Dividend adjusted stock/unit prices as provided by Capital IQ capture both capital appreciation and dividend returns. This is achieved by retroactively reducing historical prices by a dividend adjustment factor, which is calculated as: [1 – (Dividend Amount ÷ Close Price on Day t‐1)] × Close Price on Day t‐1, where Day t‐1 is the trading day prior to the ex‐dividend date.
In periods where a company included in one or more indices was inactive, it was not reflected in the index returns presented. Below is a summary of the average number of securities included in each index during the periods analyzed: