Andreas Balg/iStock through Getty Pictures
Pricey Fellow Buyers and Pals,
The estimated year-to-date third quarter of 2025 and historic web efficiency for Silver Beech Capital, LP (“the Fund” or “Silver Beech”) are offered under.
Efficiency Abstract*:
Efficiency Comparability: Worth of $100 Invested at Inception*
Since monitor file inception, Silver Beech has generated 19.5% annualized returns, which equates to five.3% annualized outperformance over the S&P 500. By means of the third quarter of 2025, Silver Beech is up 3.5%, in comparison with the S&P 500’s 14.8% and the Russell 2000’s 10.4% year-to-date (YTD) features.
The S&P 500 posted returns of +8.1% within the third quarter, extending its swift restoration following Liberation Day volatility. Whereas the market’s a number of enlargement has occurred in opposition to a backdrop of worldwide financial easing and resilient expertise profitability, we consider present fairness valuations have develop into broadly untethered from fundamentals.
Giant-cap expertise corporations driving a lot of the S&P 500’s sturdy YTD returns possess excellent legacy enterprise fashions boasting sturdy progress and excessive returns-on-capital (ROC) that justify premium valuations, however the present worth for “high quality” and “predictability” is nonetheless steep. We additionally see a resurgence of speculative habits paying homage to 2021’s speculative bubble. That is most evident within the Russell 2000, which returned +12.4% in Q3. This efficiency was not pushed by the worthwhile, heartland American corporations traditionally related to the index, however somewhat by speculative equities with low earnings and, in some circumstances, non-existent income.
On common, the 5 largest corporations within the Russell 2000 are up over 150% YTD, commerce at over a 500x P/E ratio, and are dominated by unproven enterprise fashions in speculative industries akin to quantum computing and subsequent era protection.
On this surroundings, the market is rewarding accelerating income progress with little regard for underlying profitability, money circulate, or capital effectivity. Conversely, it shrugs off corporations with modest, albeit sturdy, progress.
Towards this backdrop and for the primary time within the Fund’s monitor file historical past, we notice that Silver Beech has trailed the S&P 500 by means of the primary three quarters of 2025. Whereas we do make errors and method each interval of underperformance with humility and rigorous self-review, we consider our deviation from the benchmark is a characteristic of our self-discipline, not a bug in our course of. Preservation of capital and our orientation in direction of long-term outperformance require the self-discipline to not chase short-term returns.
We stay satisfied that whereas the market might act as a voting machine within the quick run (rewarding reputation and momentum), it features as a weighing balance in the long term (rewarding free money circulate). Our confidence is grounded in our selective funding course of and rigorous basic evaluation, which have cumulatively resulted in a big comparative disparity between Silver Beech’s portfolio and the S&P 500: Silver Beech’s portfolio trades at over a 50% low cost to the S&P 500’s price-earnings ratio and different valuation metrics, whereas possessing related projected earnings-per-share progress and returns-on-capital. This valuation hole is our margin of security and gas for our future outperformance.
On this quarter’s letter, we offer funding updates on two corporations that we consider present glorious case research on the outperformance that may be derived from our targeted technique of sturdy basic evaluation utilized to concentrated fairness investing.
Portfolio Replace: this quarter, we offer an replace on our present funding in WillScot (WSC) and our not too long ago realized funding in Dentalcorp (DNTL:CA).
WillScot (WSC)
At its present worth, we consider WillScot represents essentially the most uneven alternative within the portfolio. Following a ~40% decline from our price foundation, the inventory has derated considerably from a ~10x TEV/EBITDA (2024E) a number of to ~7.5x (2025E), and a ~7% free money circulate yield (2024E) to ~13% (2025E). At this valuation, the market is pricing WillScot as a enterprise in secular decline. This stands in stark distinction to our view of WillScot as a compounding industrial companies franchise with a dominant market place.
We method this replace with humility concerning our timing. In our Q1 2024 thesis, we posited that modular unit utilization1 was nearing a cyclical trough. We have been too early on this prediction:
- Q1 2024 View: Utilization at 62.5% (96k items) was perceived as near the ground.
- Present Actuality: Utilization has drifted right down to 59.3% (89k items).
Whereas we misjudged the cycle’s depth, the resultant sell-off has created a disconnect between worth and worth that we discover extraordinarily compelling. At a 13% free money circulate yield, the upside is clear, and we don’t even have to time the precise backside of the cycle to generate passable returns; we merely want the enterprise mannequin to stay intact. The market has little concept what WillScot is price: over the previous three years the corporate’s inventory worth has oscillated dramatically between $15 and $53 per share.
Triggered by the inventory’s selloff, and in accordance with our threat administration protocol, we carried out a complete re-underwriting of the enterprise that centered round whether or not the decline in WillScot’s utilization is cyclical (macro-driven) somewhat than structural (competition-driven). This included channel checks with clients, rivals, lenders, and business operators.
We consider our analysis confirms that the headwinds are cyclical, not structural:
- Historic Macro Headwinds: the decline in utilization correlates immediately with the ISM Manufacturing Index, which has hovered in contraction territory (<50) for practically 36 months. This length of contraction has few historic precedents, comparable solely to the 2000-2003 post-dot-com recession and the early Eighties.
- Enterprise Buyer Development : amongst enterprise clients (Fortune 500 corporations, main authorities establishments, multinational companies, and so on.) that are much less economically delicate attributable to higher funding mechanisms and longer challenge timelines, WillScot continues to develop income within the mid-to-high single digits.
- Pricing Energy : in a situation the place an organization is shedding market share to rivals, we’d count on to see pricing deflation as they combat to retain quantity. We see the other with modular unit pricing up 5%+ year-over-year in Q3 2025, and strong EBITDA margins at 40%+. We consider this reveals WillScot is sacrificing quantity to take care of worth self-discipline, a trademark trait of a rational market chief.
- Rational Oligopoly : WillScot’s well-funded rivals (United Leases (URI), Sunbelt) are publicly traded entities concentrating on related ROCs. These friends can’t undercut WillScot’s pricing whereas sustaining their very own ROC targets. WillScot’s competitors is disciplined.
- Momentary Misery : our interviews revealed that smaller personal rivals are liquidating fleets or leasing them uneconomically. Whereas this creates short-term pricing noise, it accelerates business consolidation. WillScot, with its sturdy steadiness sheet, is positioned to seize this share because the cycle normalizes.
The market’s impatience with WillScot’s lack of rapid earnings visibility has created a possibility to personal a high-quality “tollbooth” on North American building and infrastructure at a particularly engaging valuation. Along with well-managed leverage, the corporate has a number of countercyclical levers to optimize free money circulate.
We’re extraordinarily supportive of the corporate’s share repurchase program which has seen the share rely decline by 5%+ because the begin of the 12 months. We consider WillScot’s intrinsic worth is $45+ per share (~12x TEV/EBITDA (2025E)), greater than 100% increased than its present share worth. Till the cycle turns, we’re content material as shareholders to gather a double-digit free money circulate yield on a dominant, important enterprise.
Realized Funding – Dentalcorp (TSX: “DNTL”) (OTCPK:DNTCF)
Within the third quarter, we efficiently realized our funding in Dentalcorp following its acquisition by GTCR. The transaction, priced at $11 per share, concludes our two-year holding interval with a 44% gross IRR.
GTCR’s funding thesis seems to validate the particular attributes we recognized in our preliminary underwriting (detailed in our Q3 2023 letter and Q1 2024 letter ): Dentalcorp is the associate of selection for Canadian dental practices, possesses a definite scale benefit as the biggest consolidator, a formidable service providing which ends up in acquisition synergies and robust identical observe income progress, and enjoys a protracted runway for capital deployment. These attributes shall be enhanced underneath the singular focus of personal possession.
Whereas the take-private end result seems deceptively apparent in hindsight, the trail was decidedly non-linear. Dentalcorp steadily languished within the public markets, making a disconnect between worth and worth that allowed us to train our (and GTCR’s) distinct benefit: endurance and long-term time horizon.
Following its 2021 IPO at ~$14 per share (14x TEV/EBITDA), the inventory fell greater than 50% by Q3 2023. The market fixated on macroeconomic fears—particularly rising rates of interest and leverage considerations—whereas ignoring the corporate’s utility-like money flows and predictable margin enlargement. We initiated our place throughout this era of pessimism at <$6 per share (~9x TEV/EBITDA).
Crucially, our involvement didn’t cease on the preliminary purchase. We utilized subsequent volatility to our benefit. When the market overreacted to short-term noise in key efficiency indicators akin to identical observe income progress brought on by post-COVID normalization of dental compliance or regulatory adjustments we pressure-tested our thesis. Discovering no structural impairment to the enterprise, we opportunistically elevated our stake throughout drawdowns, most not too long ago in March 2025 when shares fell over 20% in a number of months and dipped under $8 per share.
GTCR’s acquisition worth of $11 per share (~12x TEV/EBITDA) represents a significant re-rating and validates our view that the general public markets have been structurally undervaluing Dentalcorp’s main place as the first consolidator within the Canadian market. Whereas this determine stays barely under our inside intrinsic worth estimate of ~$12.50 and we consider GTCR is shopping for the corporate low cost, the transaction unlocks rapid liquidity and secures an distinctive IRR on our fairness funding.
The Dentalcorp funding serves as a well timed reminder that the market typically overfits non permanent fluctuations in enterprise fundamentals into grand narratives of progress or decline. Whereas impatient capital fled the inventory’s volatility, the enterprise didn’t cease creating shareholder worth. By distinguishing between worth volatility and enterprise threat, we have been in a position to flip market capriciousness right into a 44% IRR throughout our two-year maintain interval.
Conclusion: it’s our nice privilege to be your associate and handle your capital alongside our personal. We thanks to your belief. We’re all the time out there to debate our technique and deal with your questions.
Sincerely,
James Hollier, Associate & Portfolio Supervisor
James Kovacs, Associate
Silver Beech Capital, LP
Silver Beech Capital, LP – Fund Abstract as of September 30, 2025
Editor’s Notice: The abstract bullets for this text have been chosen by Looking for Alpha editors.
