B Riley ($RILY) — FY21

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Price: $60

Market Cap: $1.75bn

Valuation: 6.7% dividend yield

Category: Core

FY21 Review

The share price has rolled over from nearly $90 to ~$60 as of 2/25/2022. Capital markets activity is softening and this showed in the latest results.

Operating revenue grew 30% YoY but EBITDA fell 16%. [Ignoring the investment gains/losses when reviewing the performance of operating business.]

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Earnings Call Notes

  • Pro-Forma Model — Bryant Riley (CEO) spent a great deal of time walking through the pro-forma financial model of the company (again) on Q4 earnings call.
  • It is important to put this in perspective. When you had a conservative view of the cumulative annual EBITDA generated from these strategic assets to a significant interest income stream, one could assume that if we were to derive almost no income from our B. Riley Securities business, a business that generated operating EBITDA of $51 million, $111 million and $272 million in 2019, '20 and '21, respectively, we would still have enough cash flow to pay a full $4 annual dividend, which equates to approximately $110 million of excess cash after payment of interest and taxes. Our objective is to utilize the proprietary opportunities that our platform offers to make these types of investments with the goal of continuing to provide a hedge against the market decline and an opportunity to regularly increase our dividend.
    In summary, when I think about the earnings profile of B. Riley Financial, I believe we have strong recurring cash flow with minimal correlation to the markets that allows us to confidently return $4 of dividends to shareholders every year, plus the brokerage business will provide strong cash flow more correlated with the general markets. This was a key factor in our delivering $10 in total dividends to common shareholders for 2021. Over time, we will continue to focus on utilizing our cash flow to enhance our business, make accretive acquisitions and to return capital to our shareholders.
  • Buybacks — Buybacks have always been a second thought for RILY... Under the last repurchase authorization; management bought back only $12.6m worth of stock from October 2020 to December 2021. Along with Q4 earnings they announced another $50m authorization (<3% of market cap) but no timeframe.
  • Dividends — This is the favored capital allocation priority for RILY. Declared $10/share in dividends during 2021 — 16.7% yield on $60 share price. The base dividend made it’s way to $4/share for a 6.7% yield.