$RILY is running hot, it will get HOTTER - A Real DD on one of the best plays in the market, Big upside potential sill remains
Disclaimer : Not Financial Advise
Hopefully by now you might have heard something about RILY. The company whose stock has been running hot for the last week. You probably heard either:
- The company is a fraud and going to zero
- Oh this will squeeze them nuts
So I thought how about we do some DD on where we actually stand today and where this might actually go. Credit for material for this DD is based on various reddit posts, other platforms, articles, company filings etc. So, credit to all of them, you know who you are. I am sure all you will double check everything I say and do even better research before parting with a single penny of your hard earned cash.
So that being out of the way, lets really get into it, see where we are and where we might go.
Background and Risks
Let us take a step back and fist ask the question who RILY is and what do they do. I am copying the below directly from the company website:
“Headquartered in Los Angeles with offices across the U.S., B. Riley Financial (NASDAQ:RILY) is a publicly traded, diversified financial services company which invests in and acquires companies with attractive return profiles. The company operates through several wholly owned subsidiaries which provide a collaborative approach to the capital raising and financial advisory needs of public and private companies and high net worth individuals”
In summary the company believes, they buy shitty companies, turns them around and sells them for a profit. Simple enough, right? No, it also means the company takes risky positions, provides risky loans that can blow up in their face if things go south.
Saying that the company has some great assets in it's portfolio like Vitamine Shoppe and Pet Supplies plus, but then also has some of this crappy companies mentioned above
So, this is where things got interesting. In 2023 a whole bunch of short funds started attacking RILY for their lack of transparency in dealing with their risky loans and basically said the company is going to zero. The attack was led by Wolfpack research [https://wolfpackresearch.com/research/rily/]. Based on this, multiple other short funds joined the party. Bear Cave was the latest one to publish reports in Feb 2024. Bloomberg also published articles basically saying the company is going to zero and stay away.
What made matters worse was that the short funds accused RILY of a conflict of interest due to CEO Brian Kahn's ties with Great American Group, a RILY subsidiary. They alleged Kahn's involvement favored RILY over shareholders, questioning deal transparency and alignment with shareholder interests. This association was Kahn was that really hurt RILY, as Kahn is accused by the SEC of hiding trading losses, fabricating collateral, misusing funds from Prophecy Asset Management, and potentially insider trading. Prophecy Asset Management went bust few years ago, so basically the accusation is that RILY was fully aware of this fraud and actually helped Kahn so are criminals themselves. Boom.
After all that, the stock cratered. From a high of $59 in July 2023 the stock was near $20 in November 2023. More than 60% of the value wiped.
Lets move ahead to 2024:
Come 2024 the company is reeling, the stock price is in the gutter and really they have no answers to all the negative news. There is nothing really the company can do to counter all that. However, the biggest worry in 2024 was this
Can the company file clean audited accounts? Will anyone sign off the value of the loans they carry on their balance sheet. This is where thing get interesting.
On Feb 28th – the company says it needs 15 more days to get it done.
On Mar15th – the company says, oops we cannot get it done in time. They missed a regulatory filing deadline and get a NASDAQ compliance notice
The negative naysayers are having a field day that no way the company can file
Mar 29th – Company says it has agreed with its creditors, they will file in 30 days. This is huge as Nomura’s loan was going to be in default if they did not give an extension
Tik tok tik tok. And this is where we were last week and then………
Catalyst 1 – Clean 10k
This is as simple as it gets. The company field clean audited 10k. oops, the company is not actually a fraud and a proper run company. This is actually something that got the pricing going into overdrive last week
https://www.sec.gov/ix?doc=/Archives/edgar/data/1464790/000162828024017512/rily-20231231.htm
Catalyst 2 – The company is not linked to Kahn in any criminal way
This is huge. The market had priced in that the company IS linked to Kahn, but what did the company do? They hired two, not one companies to do an independent investigation if they had any links to KAH
Company were cleared by Sullivan and Cromwell at the start of the year but what did the reveal in the 10K:
BOOM BOOM BOOM
So now that is out of the way what are some upcoming catalysts that can even propel the price higher:
Catalyst 3: Asset Sale
So lets be real the company has issues, their balance sheet needs support, so how do they plan on doing that?
Catalyst 4: Buying back their debt on the cheap
So what happens when a company’s image is in the gutter, well their bonds get cheap and offer great returns. If you are smart, you got some piece of the pie. As it says in the above the company will use a bunch of proceed from the asset sale to buy back bonds on the cheap. Once this announcement starts to come up with the above, this should lead to an increase in the stock price
Catalyst 5: Q1 Earnings
You know what the company CEO is pissed. The shorts got very personal on this one and he has made it clear he plans to provide various updates on the call. Historically the Q2 earnings have come in the first week of May, but given all the drama, I expect it come around the second half of May, but I could be wrong, just saying. What could be the updates on this call?
- Talking about all the senior hires they have made and how the business is expanding
- A healthier balance sheet – bond buy backs and asset sales
- Update on the status of their risky loans
Catalyst 6 TBC: Buyback
Credit to: EnvironmentalBreak48
The company might be potentially doing buyback. This was picked up by savy reddit users based on the latest filing on April 29th.
Over the relevant period:
- 10-Q filed 09NOV2023 stated 30,582,871 shares outstanding as of 02NOV2023.
- 10-K filed 24APR2024 stated 30,295,303 shares outstanding as of 12APR2024.
- 10-K/A (amendment) filed 29APR2024 stated 30,142,863 shares outstanding as of 16APR2024.
- From April 12 to April 16 the amount of outstanding shares declined by approximately 152,440.
The total amount of shares RILY has bought back over this period is approximately 440,008 shares (30,582,871 - 30,295,303 + 30,295,303 - 30,142,863).
New Catalyst 7 – Insider expectations
So I was typing this up over the weekend, the company filed with the SEC:
Well why is that interesting?
Holy hell. These guys will get these RSU’s if the stock hits and stays at $135. That is wild. That is 4x from here. Is there something these guys know that we don’t know? The last time the company’s stock was this high…..well before the financial crises of 2009. That is an extreme target for the company to set and I believe there is something in the works that we don’t know
Catalyst 8 – A short squeeze, maybe?
I know a bunch of you regards are in for this, but companies can remain shorted and go bankrupt with no squeeze. Here a squeeze can happen, but only if the catalysts play out. However as of April 15th, based on official Finra data, we know the Short interest is 60% of the float (10m shares). Publicly traded float is less than 10, so bada bing, where will the short find the shares now. Some might have closed in the last two weeks, but some might have added, we really don’t know. But no way everyone is closed.
Also as of today, not many shares available to borrow. Take it for what you can
What is the pain point for the shorts? Once was $25, so those guys are really feeling it. About half the shorts entered after the stock price was already under $25. This is clearly available in the short data. Another pain point is around $40 and the stock is hovering around that now. So take that for what you will.
Summary
Various estimates out there, but I based my thesis of this one:
Sprinkle a potential squeeze on top and short term we could be flying higher. If you believe the management incentives we are flying far higher.
TLDR – RILY was accused of fraud, they have cleared their name, filed audited accounts and have many catalysts coming up. Stock is at $38 today, but fair value is over $50, throw in a little squeeze could go higher and if you believe like the management, it is going to over $100
IMPORTANT - This is a risky play, will have its ups and downs, but as they say, scared money makes no money but also remember, if good enough to screenshot....
Positions or Ban:
Boring 1k shares riding in my wife;s account for a while
Submitted May 03, 2024 at 01:51AM by Outrageous_Appeal_89 https://ift.tt/yx6QH98
