Voss Capital, LLC an investment management company, released its first-quarter 2024 investor letter. A copy of the letter can be downloaded here. Voss Capital’s funds, Voss Value Fund, LP, and the Voss Value Offshore Fund, Ltd returned +9.2% and +9.0% to investors net of fees and expenses respectively, in the first quarter compared to a +5.2% return for the Russell 2000 Index, 2.9% return for the Russell 2000 Value Index, and +10.6% return for the S&P 500 Index. The fund’s total gross exposure stood at 167.8% and the net long exposure was 92.9% at the end of the first quarter. The weight of the fund’s top 10 longs was 81.1% and the top 10 shorts was 24.2%. In addition, you can check the top 5 holdings of the fund to know its best picks in 2024.
Voss Capital highlighted stocks like Rentokil Initial plc (NYSE:RTO) in the first quarter 2024 investor letter. Rentokil Initial plc (NYSE:RTO) is a route-based services provider. Rentokil Initial plc’s (NYSE:RTO) one-month return was 3.65%, and its shares lost 33.23% of their value over the last 52 weeks. On May 31, 2024, Rentokil Initial plc (NYSE:RTO) stock closed at $26.98 per share with a market capitalization of $13.552 billion.
Voss Capital stated the following regarding Rentokil Initial plc (NYSE:RTO) in its first quarter 2024 investor letter:
“Rentokil Initial plc (NYSE:RTO) is the global leader in pest control, with more than double the revenue of its next largest competitor. Although it is primary listing is in the UK, over 60% of earnings are generated in North America. Pest control is a remarkably high-quality business with largely recurring revenue, high returns on capital employed, and low cyclicality. The largest players in the industry also have attractive inorganic growth opportunities by consolidating a still fragmented market. The pest control market in the US has grown at a 4.9% CAGR over the last ten years, well above the rate of GDP growth, and RTO has its sights on growing organic revenue at 1.5x the market rate over the medium term. It is not hard to see why these businesses historically trade at a significant premium to the S&P 500.
In October 2022, RTO completed the acquisition of Terminix, a US focused pest control company. By September of 2023, it was apparent that the substantial integration effort had led to a slowdown in North American organic revenue growth. As all eyes became firmly affixed to the bumps in the road, the stock was ruthlessly punished, and our opportunity was born. RTO now trades at a substantial discount to relevant transaction comps, publicly traded comps, and its own historical trading history, as recency bias conveniently provides skeptics a rallying cry. From the transaction comps that we have data on over the last 10 years where the target had EBITDA >$10M, deals ranged from 15.3x-25.6x EBITDA yet RTO trades at 10.1x 2025 consensus EBITDA (at which point a majority of the Terminix cost synergies will be realized), making it a potential candidate for a PE buyout. Its closest public comp is ROL, which trades at 27.1x 2025 consensus EBITDA. RTO itself has averaged 15.2x forward EBITDA over the last five years, including its recent selloff.
We believe once RTO can move past the initially tough integration period and show improved organic growth, the shares have ~100% upside over the next 18 months simply by re-rating to its own historical multiple, which would be on the low end of transaction comps and still imply a ~40% discount to the well-run ROL. The Company is currently exploring US Dollar reporting and we believe a subsequent re-listing to the US would help re-rate the stock meaningfully, a la CRH.”
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Rentokil Initial plc (NYSE:RTO) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 20 hedge fund portfolios held Rentokil Initial plc (NYSE:RTO) at the end of the first quarter which was 15 in the previous quarter. In addition, please check out our hedge fund investor letters Q1 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.
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