Heritage Global Inc. (HGBL) Stock Analysis and Metrics

Sector: Financial Services Industry: Capital Markets CIK: 0000849145

Market Cap 42.82 Mn

P/B 0.64

P/E 13.89

P/S 0.86

ROIC (Qtr) 3.73

Div Yield % 0.00

Rev 1y % (Qtr) 9.13

Total Debt (Qtr) 5.90 Mn

Debt/Equity (Qtr) 0.09

About

Heritage Global Inc., also known as HGBL, is a prominent player in the asset services industry. The company specializes in financial and industrial asset transactions, offering a comprehensive range of services that include market making, acquisitions, refurbishment, dispositions, valuations, and secured lending. These services are primarily focused on identifying, valuing, acquiring, and monetizing underlying tangible assets across more than 25 global sectors. The company operates through two main divisions: Industrial Assets and Financial Assets....

Heritage Global Inc., also known as HGBL, is a prominent player in the asset services industry. The company specializes in financial and industrial asset transactions, offering a comprehensive range of services that include market making, acquisitions, refurbishment, dispositions, valuations, and secured lending. These services are primarily focused on identifying, valuing, acquiring, and monetizing underlying tangible assets across more than 25 global sectors.

The company operates through two main divisions: Industrial Assets and Financial Assets. The Industrial Assets division caters to enterprise and financial customers, primarily dealing with the sale of industrial assets from surplus or distressed circumstances. This division is further segmented into Auction and Liquidation, and Refurbishment & Resale. The Auction and Liquidation segment, operated by Heritage Global Partners, Inc., offers global full-service auction, appraisal, and asset advisory services. The Refurbishment & Resale segment, under Heritage ALT LLC, specializes in refurbishing and reselling laboratory equipment, primarily in the biotech and pharma sectors.

The Financial Assets division provides services to issuers of consumer credit looking to monetize nonperforming and charged-off loans. This division is further divided into Brokerage and Specialty Lending. The Brokerage segment, operated by National Loan Exchange, Inc., acts as an advisor for the sale of charged-off and nonperforming asset portfolios via an electronic auction exchange platform. The Specialty Lending segment, through Heritage Global Capital LLC, provides specialty financing solutions to investors in charged-off and nonperforming asset portfolios.

Heritage Global Inc. boasts a strong management team with extensive domain expertise, enabling it to leverage extensive industry relationships, real-time access to databases of buyers and sales, and a deep understanding of the underlying asset value across the various sectors it operates in. The company sees opportunities for growth in its auction services, particularly in securing ongoing contracts with large multinational sellers, being a first mover in emerging sectors, and gaining market share in sectors where it is currently less active.

The company operates in a highly fragmented market, presenting a continuous opportunity for Heritage Global Inc. to increase its market share and drive consolidation. Its key competitive strengths include its differentiated business model, compelling macro growth drivers, high return on invested capital, and strong management team.

As of December 31, 2023, Heritage Global Inc. had 82 full-time employees, distributed across its segments and located at its corporate headquarters in San Diego, CA. The company's corporate website is www.hginc.com.

In terms of its product and service offerings, Heritage Global Inc. provides a wide range of services, from market making and acquisitions to refurbishment, dispositions, valuations, and secured lending. Its primary products and services include auction and liquidation services, refurbishment and resale of laboratory equipment, brokerage services for nonperforming and charged-off loans, and specialty lending solutions for investors in charged-off and nonperforming asset portfolios.

Price action

Investment thesis

Bull case

Healthy cash reserves of 19.43M provide 23.61x coverage of short-term debt 823000, demonstrating strong liquidity position and minimal refinancing risk.
Strong tangible asset base of 75.90M provides 12.87x coverage of total debt 5.90M, indicating robust asset backing and low credit risk.
Free cash flow of (8.82M) provides exceptional 44.53x coverage of interest expense (198000), showing strong debt service ability.
Long-term investments of 26.50M provide solid 5.22x coverage of long-term debt 5.08M, indicating strategic financial planning.
Robust tangible asset base of 75.90M provides 4.24x coverage of working capital 17.92M, indicating strong operational backing.

Bear case

Operating cash flow of (952000) barely covers its investment activities of (6.93M), with a coverage ratio of 0.14, indicating heavy reliance on external financing for growth which may not be sustainable in a tighter credit environment.
Cash reserves of 19.43M provide limited coverage of acquisition spending of (1.53M), which is -12.70x, suggesting aggressive expansion might strain liquidity if market conditions deteriorate.
The company's operating cash flow of (952000) shows concerning coverage of stock compensation expenses of 1.17M, with a -0.82 ratio indicating potential earnings quality issues.
Free cash flow of (8.82M) provides weak coverage of capital expenditures of 7.86M, with a -1.12 ratio suggesting additional external financing needs for growth initiatives.
Operating cash flow of (952000) provides minimal -0.27x coverage of tax expenses of 3.54M, suggesting potential tax planning inefficiencies or unsustainable tax positions.

Peer comparison

Companies in the Capital Markets

S.No.	Ticker	Company	Market Cap	P/E	P/S	Total Debt (Qtr)
1	GS	Goldman Sachs Group Inc	284.23 Bn	17.94	4.84	911.32 Bn
2	MS	Morgan Stanley	279.63 Bn	17.97	4.05	353.12 Bn
3	SCHW	Schwab Charles Corp	179.33 Bn	23.09	7.83	27.59 Bn
4	HOOD	Robinhood Markets, Inc.	106.92 Bn	48.73	25.43	0.00 Bn
5	CRCL	Circle Internet Group, Inc.	40.97 Bn	261.00	24.22	0.15 Bn
6	IBKR	Interactive Brokers Group, Inc.	28.23 Bn	30.79	4.75	28.43 Bn
7	LPLA	LPL Financial Holdings Inc.	27.60 Bn	33.13	1.77	7.52 Bn
8	FUTU	Futu Holdings Ltd	22.89 Bn	18.13	8.54	1.75 Bn

Industry comparisons

Current Valuation	Value	Ind Avg
EV to Assets EV to Assets	0.34	1.07
EV to Cash from Ops. EV/CFO	-30.65	15.33
EV to Debt EV to Debt	4.95	21.89
EV to EBIT EV/EBIT	4.54	-0.80
EV to EBITDA EV/EBITDA	3.98	11.20
EV to Free Cash Flow [EV/FCF] EV/FCF	-3.31	43.08
EV to Market Cap EV to Market Cap	0.68	-0.05
EV to Revenue EV/Rev	0.58	12.82
Price to Book Value [P/B] P/B	0.64	3.09
Price to Earnings [P/E] P/E	13.89	6.20

Dividend Metrics	Value	Ind Avg
Dividend Coverage Ratio Dividend Coverage Ratio	0.00	4.22
Dividend Payout Ratio % Div Payout % (Qtr)	0.00	10.37
Dividend per Basic Share Div per Share (Qtr)	0.00	0.70
FCF Dividend Payout Ratio % FCF Div Payout % (Qtr)	0.00	-8.68
Interest Coverage Int. cover (Qtr)	-32.43	37.53

Growth Metrics	Value	Ind Avg
Capex Growth (1y) % Capex 1y % (Qtr)	-5,006.49	-12,429.64
Cash and Equivalents Growth (1y) % Cash & Equiv 1y % (Qtr)	-26.86	1,588.78
Dividend Growth (1y) % Dividend Growth (1y) %	0.00	4.88
EBIAT Growth (1y) % EBIAT 1y % (Qtr)	-71.57	270.93
EBITDA Growth (1y) % EBITDA 1y % (Qtr)	-29.14	333.57
EBIT Growth (1y) % EBIT 1y % (Qtr)	-47.09	3,103.22
EBT Growth (1y) % EBT 1y % (Qtr)	-44.16	3,039.53
EPS Growth (1y) % EPS 1y % (Qtr)	-67.86	24.25
FCF Growth (1y) % FCF 1y % (Qtr)	-165.08	-80.08
Gross Profit Growth (1y) % Gross Profit 1y % (Qtr)	-9.91	51.33

Liquidity Ratios	Value	Ind Avg
Asset Utilization Ratio Asset Util Ratio (Qtr)	0.58	0.42
Cash Payout Ratio Cash Payout (Qtr)	0.00	-0.08
Cash Ratio Cash Ratio (Qtr)	1.40	2.01
Current Ratio Curr Ratio (Qtr)	2.29	3.47
Debt to Equity Ratio Debt/Equity (Qtr)	0.09	1.46
Interest Cover Ratio Int Coverage (Qtr)	-32.43	37.53
Times Interest Earned Times Interest Earned (Qtr)	-32.43	37.53

Profitability	Value	Ind Avg
EBITDA Margin % EBITDA Margin % (Qtr)	15.30	76.68
EBIT Margin % EBIT Margin % (Qtr)	12.87	46.81
EBT Margin % EBT Margin % (Qtr)	13.27	58.57
Gross Margin % Gross Margin % (Qtr)	62.50	53.60
Net Profit Margin % Net Margin % (Qtr)	6.20	29.41

Heritage Global Inc. (NASDAQ: HGBL)

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