B. Riley Financial, Inc. (RILY, $63.05):
“The Financial Unicorn”
By: Andriy
Tykhonov, AIM Student at Marquette University
Summary
• B. Riley Financial, Inc. (NASDAQ: RILY) is a financial company that provides financial services and solutions to
private and public firms. The firm operates through six segments: Capital
Markets; Auction and Liquidation; Financial Consulting; Principal
Investments-United Online and magicJack; Brands; and Corporate and Other. The
company was founded in 1997 and is headquartered in Los Angeles, California.
• Momentum in Capital Markets
driven by government stimulus and low interest rates has benefited RILY’s
investment banking business, generating healthy earnings.
• RILY’s strong balance sheet and
lower cost of capital have helped the company focus on shareholders returning
$8.50 in common stock dividends over the last three quarters.
• B. Riley’s continuous
investments in complementary businesses, such as the acquisition of National
Holdings and 272 Capital L.P., have expanded their reach and market share.
Key
points:
B.
Riley has been on an incredible run in the past year, skyrocketing by about
139%. The big reason for this consistent growth has been an impressive
quarterly performance. In Q2 2021, RILY reported revenues of $336.8 million,
which increased year over year from $267 million. Their investment banking
activities created the earnings upside, led mainly by the capital markets and
liquidation business. The United States' economic recovery in 2021, driven by
government stimulus, low interest rates, and an increased number of persons who
received the COVID-19 vaccine, has helped the capital markets industry
tremendously. Capital is abundant in the market, which has led to an increased
number of mergers and acquisitions. In Q1 2021, the global deal volume reached
14,781 compared to pre-COVID-19 numbers in Q1 2019 with 11,276 deals. With this
trend expected to continue throughout 2021, B. Riley should have substantial
revenue in the Capital Markets segment.
The
company has strongly emphasized being shareholder-focused, as mentioned in the
initial write-up in October 2020. The same holds today with their platform
strategy; RILY built a solid balance sheet and lower cost of capital, enabling
them to return $8.50 common stock dividends over the last three quarters. In
2021, B. Riley has acquired two companies, National Holdings, and 272 Capital
L.P. National Holdings acquisition added 700 new registered reps and
approximately $20 billion to their platform. With their Wealth Management team
growing, B. Riley has unique opportunities to create a dynamic wealth
management platform due to their expanded banking opportunities, proprietary
product offerings, and differentiated capital market transactions. RILY
acquired the investment advisory business of 272 Capital L.P. in early August,
focusing on fundamental research and small-cap value. With the addition of 272
Capital, B. Riley will benefit from more capital and additional resources,
which will grow their Asset Management business and create a more diversified
source of income.
What
has the stock done lately?
Throughout the past two months,
B. Riley’s stock price has decreased by around 18%, from $76.59 to $63.05. The
stock has been volatile, with a high of $76.59 on July 6th and a low of $60.40
on August 19th, which shows a difference of 21.14%. The company’s comparable
index has not performed well, decreasing by 0.59%. One of the reasons for the
decrease in the stock price is RILY’s Q2 EPS which was $2.58 compared to a year
ago, $3.07. B. Riley’s competitors, such as Piper Sandler Companies and Moelis
& Co. Class A, have outperformed them by 10.26% and 10.57%, respectively.
Past
Year Performance:
In the last twelve months, B.
Riley has increased in value by around 139%. The 52-week high was at $77.51 and
as low as $24.60, which shows the incredible run the security has had. The
considerable increase in January was due to RILY acquiring the remaining
outstanding shares of National Holdings and an 870k common stock offering. All
other significant increases were mainly due to the company beating its
quarter's expectations. B. Riley has significantly outperformed the Russel
2000, which has grown by around 49% in the past year.
B. Riley has been an incredible
company to follow in the past twelve months due to its growth. Unfortunately,
it has been declining in the past two months even though their Q2 revenues were
up year over year. The new acquisition of 272 Capital shows promises for their
Asset Management business. RILY had a price target of $44.56 when the AIM fund
first purchased it and is currently at $63.05. While there is some positive
news for RILY looking into the future, I recommend the AIM Small Cap Fund sells
the security to capitalize on the gains.
