Silver Beech’s Investment Thesis for Rentokil Initial (RTO)

Silver Beech Capital, a value-oriented investment management firm, released its fourth-quarter 2024 investor letter. A copy of the letter can be downloaded here. Since its inception, Silver Beech has achieved a net annualized return of 22.6%, representing an annualized outperformance of 9.5% over the S&P 500. The fund returned 23.9% for the full year, slightly behind the S&P 500’s return of 25.0% and significantly outpacing the Russell 2000’s return of 11.5%. Outsized profits in financials, energy, and consumer sector investments drove the strong performance of the portfolio in 2024. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2024.

In its fourth quarter 2024 investor letter, Silver Beech Capital emphasized stocks such as Rentokil Initial plc (NYSE:RTO). Rentokil Initial plc (NYSE:RTO) is a route-based services provider. The one-month return of Rentokil Initial plc (NYSE:RTO) was -5.95%, and its shares lost 24.05% of their value over the last 52 weeks. On March 26, 2025, Rentokil Initial plc (NYSE:RTO) stock closed at $22.90 per share with a market capitalization of $11.51 billion.

Silver Beech Capital stated the following regarding Rentokil Initial plc (NYSE:RTO) in its Q4 2024 investor letter:

“Rentokil Initial plc (NYSE:RTO) is the world’s largest pest services company. The pest services business model is attractive because it is capital-light, revenues are acyclical and mostly recurring with high retention rates, costs are variable, and the sector benefits from structural growth tailwinds. As society grows wealthier, it prioritizes pest control and consumes more pest control services; this durable trend has driven GDP+ growth in the pest services sector for decades and will drive GDP+ growth for years to come.

Though Rentokil also operates profitable hygiene services segments2, we do not focus on them here as they contribute less than 10% to Rentokil’s profits and are therefore not core to our investment thesis.

It is relatively straightforward to start a small pest services company with a technician’s license, some chemicals, and a truck. But there are significant scale benefits that accrue to large companies like Rentokil due to route density, branch consolidation, and brand recognition that make it hard for a small, independent pest services company to compete effectively. The clearest evidence of this scale benefit is illustrated by Rentokil’s own branches: larger branches with more than $8M revenues operate at 10%+ higher operating margins than branches with less than $3M revenues; this disparity is even more dramatic when comparing scaled Rentokil branches with subscale independent branches…” (Click here to read the full text)

Is Billion Dollar Hedge Fund Voss Capital Crazy About Rentokil Initial (RTO)?

A specialist cleaning service team in full protective equipment removing hazardous waste.

Rentokil Initial plc (NYSE:RTO) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 24 hedge fund portfolios held Rentokil Initial plc (NYSE:RTO) at the end of the fourth quarter compared to 19 in the third quarter. While we acknowledge the potential of Rentokil Initial plc (NYSE:RTO) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

We covered Rentokil Initial plc (NYSE:RTO) in another article, where we shared Brown Advisors Global Leaders Strategy’s views on the company. In addition, please check out our hedge fund investor letters Q4 2024 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.