B Riley Financial

Ticker
$RILY
Industry
Financial
Type
Jockey
Rating
Covered
Category
Core
Target Price
$83.00
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When we took the business public in 2014, B. Riley Financial effectively consisted of 2 cyclical subsidiaries: B. Riley Securities, our investment banking business, which we expanded through acquisitions, including FBR in 2017; and most recently FocalPoint last month and Great American Group, which is primarily a retail liquidation business. Since that time, we have added to our collection of operating companies by procuring 4 telecom and communication assets, 2 wealth management businesses, a forensic accounting litigation support and restructuring business, a portfolio of retail brand licenses, a loans receivables portfolio and several smaller complementary assets. All of these purchases were opportunistic and share the common characteristic of being cash flow generative and mostly uncorrelated assets. This was by design.

Notes

Business model — Combination of steady + episodic businesses… favors a heavy capital return program via dividends above all else; utilized to make up for the complexity of the business — it’s difficult to predict / forecast
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Financial summary — 1H22 results slowing as capital markets activity slows down… trailing operating EBITDA $366m
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The B Riley Complex — owned or controlled investments
  • BEBE — bebe stores
  • BW — Babcock & Wilcox
  • AREN — Arena Group (formerly TheMaven)
  • FRG — Franchise Group (less involved now but helped get this company off the ground)
Equity Holdings — 13F Filings
Balance sheet — cash + investments (stocks and funds), loans receivable = $61m net of debt (2Q22)
  • View this as 2 buckets:
    • Net debt (2Q22) = $2.115bn less $216m cash = $1.9bn true net debt
    • Securities portfolio $1.13bn + loans receivable $770.8m = ~$1.91bn investment portfolio
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Insider buying — CEO Bryant Riley has been a heavy repurchaser of shares and owns ~20% of the company
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Financials & Valuation

💡
2Q22 Valuation — I take a 2-column valuation approach to B Riley a la Berkshire Hathaway. First, I value the operating businesses with debt; then, I value the investment portfolio separately. There are 28.3m shares outstanding x $59/sh = $1.67bn market cap.
  1. Operating Business(es) — EBITDA for the operating companies was $311m, $422m, and $366m in FY20, FY21, TTM. An 8x multiple on a normalized $300m EBITDA = $2.4bn or $82 per share for operating businesses.
  2. Investment Portfolio — Securities total $1.1bn (net of short sales) and loans receivable total $770m. About $1.91bn in total or $68 per share.
  3. Net Debt — Ex securities and loans totaled $1.9bn at 2Q22. This is $67 per share

Research Notes & Resources

August 2022 — 2Q22 earnings review

As of 8/16/22, RILY is down 31% YTD from $80+ to $59 per share. Capital markets activity has slowed down considerably and operating revenue/EBITDA are following suit. Operating EBITDA is down ~20% in Q2 and ~26% YTD. Investment returns reflect mark-to-market activity and should be judged by their balance sheet value less some discount.

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The National Holdings acquisition (net zero acquisition price!) is still being integrated. The wealth management division continues to generate losses for B Riley.

The principal investments division is coalescing around the “communications” offerings. “We have not closed BullsEye, which we think once it kind of gets going will add, with synergies, $15 million to $20 million of EBITDA.” This could add a lot of stable cash flow.

Based on my estimates of $68/sh investment portfolio and $67/sh net debt = ~$58/sh enterprise value and $10.60/sh in EBITDA. Stock is trading at roughly 5.5x EBITDA based on those inputs.

February 2022 — FY21 review
October 2021 — 3Q21 earnings review
August 2021 — 2Q21 earnings review
January 2021 — 4Q20 earnings review
October 2020 — Initiation report
August 2020 — 2Q20 earnings review