This is my first attempt at a DD, so bear with me as I go through this.
BACKGROUND
The company I'm looking at today is B Riley Financial (Nasdaq:$RILY). The company is a broad financial services provider which started as an investment bank and currently includes segments in capital markets, auction and liquidation, valuation and appraisal, and principal investments.
The capital markets segment provides an array of investment banking, corporate finance, research, wealth management, sales and trading services to corporate, institutional and high net worth clients.
The auction and liquidation segment utilizes a network of independent contractors and industry-specific advisors to tailor its services to the needs of a multitude of clients, logistical challenges and distressed circumstances.
The valuation and appraisal segment provides valuation and appraisal services to financial institutions, lenders, private equity firms and other providers of capital.
The principal investments consists of businesses which have been acquired primarily for attractive investment return characteristics.
FINANCIALS
RILY recenly released their Q4 2020 and FY2020 results last week of which the following are highlghts:
Fourth Quarter 2020 Financial Highlights
- Record quarterly total revenues of $410.2 million vs. $165.2 million for Q4 2019
- Record investment banking results driven by increased activity and larger transactions
- Net income of $170.1 million vs. $16.9 million, EPS of $6.55 vs. $0.59 per diluted share
- Operating revenues of $270.0 million vs. $130.5 million, Operating EBITDA of $126.8 million vs. $16.4 million
- Q4 total adjusted EBITDA of $260.5 million vs. $50.3 million
Full Year 2020 Financial Highlights
- Record annual total revenues of $902.7 million vs. $652.1 million for FY 2019
- Net income of $200.4 million vs. $81.3 million, EPS of $7.56 vs. $2.95 per diluted share
- Operating revenues of $798.7 million vs. $545.6 million, Operating EBITDA of $311.7 million vs. $113.6 million
- Annual investment gains of approximately $104 million
- Annual total adjusted EBITDA of $406.8 million vs. $207.9 million
Additionally, with the earnings release, they announced an increase to their quarterly dividend from $0.35 per share to $0.50 per share as well as a special dividend of $3.00 per share for a total dividend to stockholders of record on or around March 24th of $3.50 per share. This would bring the dividend to about a roughly 5.4% rate which is a very strong return (looking at you $RKT folks)
OUTSIDE RESEARCH AND HISTORY
So how has the company done over time you ask? Since 2016 revenue has grown from $190 million in to an estimated $798 million in 2020, a ~42% CAGR. EBITDA has grown from $48.9 million to approximately $406 million or a ~65% CAGR, and the regular dividend has grown from $0.32 to $1.50. Additionally, they recently completed the acquisition of National Holdings Corporation, another wealth management firm, with asset management of approximately $20 billion to add to the already existing $12 billion management portfolio. Since this is a recent acquisition income and revenue from this acquisition won't hit the financials until the Q1 earnings are released at the earliest.
Additionally, just yesterday they announced the full redemption of 7.5% Senior Notes due in 2027 showing another strong financial indicator. Also, the largeest shareholder in the company, CEO Bryant Riley, has continued to be bullish in his own company with continued stock buy backs through out the last few years, with the most recent being a $4.6 MM purchase in January at $46 a share. A lot of conviction in the long term growth in the company from the C-Suite folks.
Lastly, I'll leave this bit of research from hype machine Seeking Alpha, which notes that RILY is trading at a deep discount in relation to it's peers is the financial sector. It currently trades roughly around 3x to 4x EBITDA, while other firms in the sector are trading around 14x. Now, this isn't to say that RILY will be at that 14x rate, but it does lend some credence to where it could go. Seeking Alpha goes on to note that even at a 40% discount from it's 14x EBITDA would put the price per share around $111, which would represent a 71% increase in value from the current stock price.
CONCLUSION
I feel as those this might be a hidden gem in the financial sector as it has a very diversified set of offerings that can benefit from both up and down markets. Additionally, leadership has show strong conviction in the company and analyst feel as those the long term gains are there. I don't know if $111 or $150 a share is on the horizon, but I'll be very interested to find out and see where this one goes.
Submitted March 02, 2021 at 04:44PM by guyatwork37 https://ift.tt/3bWQt80
