B Riley ($RILY) — 2Q20 (8/12/20)

B Riley (RILY) posted Q2 results — This is a decent sized CORE position for me (>4% weighting).

I’ll start by saying I love this business and despite the stock’s run… I can’t sell this position…

They characterize the business as a combination of recurring revenue sources and episodic revenue sources:

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The best part is that each business unit has the ability to add deal flow for future lucrative investment opportunities…

Q2 Results

RILY has a large securities portfolio on its balance sheet which caused huge mark-to-market swings in Q1 results — so you really need to look at things as 1H20 vs. 1H19…

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On an operating business level, revenues were down ~4.5% to $152m while EBITDA was up 8% to $46.7m — stripping out investment results.

Segment Performance

Capital Markets segment has been incredibly strong YTD and leading to most of the improvement from last year.

RILY is a big believer in having multiple horses in the race such that if one is falling behind, another one is there to keep them in the race… This strategy is shining so far this year!

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Balance Sheet

Securities swung from $408m at 12/31 to $287m in Q1 back to $400m in Q2… just to get a sense for the wild market movements of late…

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Valuation

So what is this thing worth?

I admit the business has gotten more complex over the years and the balance sheet has ballooned lately. I find myself holding on with Bryant Riley (CEO and Founder) owning a significant chunk of stock and continuing to buy shares in the open market.

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Here’s a snapshot of how the company views itself today…

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There are a few things wrong with this picture… Included in net cash are $311.4m in loans receivable and $92.6m in other assets, along with the $389.2m securities portfolio which we saw earlier was fairly volatile…

If we exclude all of these items, we get net debt of $805m

There are ~26m shares outstandingx $27 stock price$700m market cap

+ net debt of $805m$1.5bn enterprise value

Take that against the LTM operating business EBITDA = 8.8x EV/EBITDA — a pretty full value if not slightly high…

But…

On top of that, we have securities of $390m, loans receivable of $311m, and other assets (equity investments) of $90m = $790-800m in value if fully realized… this is $30 per share in various other assets!

So we have financial assets worth potentially $30 per share and a collection of operating businesses that have been performing well worth maybe 7-9x EBITDA or $15-28 per share net of debt = $45-60 per share in total value just as it stands today…

Management has not been shy during 2020… with other businesses retrenching and hoarding cash, RILY has repurchased stock and paid dividends…

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Maybe I should be buying more of this…