RILYP - B. Riley's Balance Sheet Is In Bad Shape With A Risky Solvency Position

2024-02-18 08:05:56 ET

Summary

• This article exposes balance sheet risks to B. Riley which occur before the claims of equity investors, preferred equity investors and lenders.
• RILY's core business is in a risky solvency position; excluding the impact of highly volatile trading revenue streams, RILY has negative EBIT levels, so net interest expense is not covered.
• The company has a negative net assets positions excluding goodwill. Yet, the stock trades above book value. This implies further downside ahead.
• Short interest is high, but there was already a short squeeze in late January 2024, which I believe reduces the chances of another short squeeze until new lows are made. However, the short borrow fees are too high to initiate fresh short sells.
• The balance sheet problems in B. Riley are structural. Hence, I believe it is highly unlikely that Q4 earnings would lead to any kind of sustained reversal.

Thesis

I believe B. Riley Financial, Inc. (RILY) is in a precarious position with further downside to go because:

1. RILY's core business is in a risky solvency position.
2. The company has a negative tangible book value yet is trading above book value.

3. Short interest is high, but I believe a squeeze is unlikely until new lows are made.

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