By Michael Kim

NASDAQ:BENF

READ THE FULL BENF RESEARCH REPORT

Pre-market open on 2/13/25, Beneficient (NASDAQ:BENF) reported F3Q25 (Dec) earnings results. On a GAAP basis, BENF reported a net loss of $1.32 per Class A diluted share for F3Q25 versus a loss of $158.36 per share for F3Q24. The year-over-year variance primarily relates to more favorable GAAP revenue trends, and a $883 million non-cash goodwill impairment charge in F3Q24.

BENF reported an adjusted segment operating loss attributable to BENF equity holders of $4.7 million for F3Q25 compared to a loss of $2.3 million in F2Q25. The Q/Q decline was largely a function of a step up in credit loss adjustments combined with higher operating expenses. On an adjusted basis, Beneficient reported a net loss of $0.72 per Class A share versus our $0.21 estimate. Relative to our model, the miss was primarily a function of lower-than-expected revenues and higher expenses across Ben Liquidity, partially offset by lower Corporate & Other expenses.

Following our review of F3Q25 results, we highlight the following key takeaways:

1. Pieces in place for growth: While loan originations remained on hold in F3Q25, we look for sustainable growth in volumes over time. In late December 2024, the company announced a series of Public Stockholder Enhancement Transactions that provide public company stockholders with preferential treatment (previously reserved for Preferred Equity holders) in the event of a liquidation. Pending approval expected in 1H25, we believe the transactions will serve as a key catalyst for reaccelerating and sustainable growth for BENF’s core liquidity business.

Stepping back, management put new business discussions with potential clients for normal course liquidity transactions on hold in the fourth quarter of last year, thereby pausing ExchangeTrust transaction activity. Following the announcement of the Public Stockholder Enhancement Transactions, senior officials have actively reengaged with prospective customers previously in the pipeline and relaunched sales/marketing efforts. As evidence of the shift, the company recently closed a $1.4 million primary capital commitment. From a balance sheet perspective, the transactions drive meaningful Tangible Book Value (TBV) accretion for public company stockholders – another attractive economic element for potential counterparties.

2. Continuing to add complimentary businesses: Management remains focused on further extending the company’s services by launching adjacent/related new businesses. In addition to plans to bring to market a platform to facilitate alternative securities lending, Beneficient recently entered into an agreement to acquire Mercantile Bank, a financial institution based in Puerto Rico. Following the anticipated closing of the transaction in 2Q25, Beneficient’s lineup of custody services will expand to include digital assets (at materially higher fee rates), while Mercantile will serve as a funnel for sourcing new clients, particularly outside of the U.S. Stepping back, the acquisition likely generates incremental fees and further diversifies the company’s revenue base.

3. Recalibrating earnings outlook: After updating our model for F3Q25 actuals, we are resetting our F2025 and F2026 EPS estimates. On an adjusted business segment attributable to BENF equity holders basis, we forecast net losses per Class A share of $2.89 in F2025 (Mar) followed by $0.54 for F2026. More specifically, our updated estimates reflect a flatter revenue trajectory, with growth mostly dependent on reaccelerating ExchangeTrust transactions. That said, Beneficient maintains a powerful revenue model, with every $100 million of loans originated translating into ~$12 million across Ben Liquidity interest income and Ben Custody fees based on our back-of-the-envelope math. Turning to expenses, our model incorporates higher operating costs – generally consistent with F325 run-rates. Sluggish monetization activity likely continues to inflate expected credit losses in the near term, while we expect variable costs to trend higher, as transaction volumes build over time. However, BENF’s diversified ExAlt Loan portfolio seems primed for stepped up realizations assuming a favorable macroeconomic/regulatory backdrop and IPO activity ramps up more broadly.

Turning to valuation, we are taking down our price target by $1.00 to $4.00 reflecting our lower earnings outlook. While we still see considerable upside potential for the stock over time, we recognize a meaningful upward revaluation likely necessitates sustained growth in loan origination volumes driving an inflection in profitability. That said, we calculate BENF’s Tangible Book Value (TBV) per share stood at ~$1.15 following the closing of the $1.36 million primary capital commitment in January, thereby providing a valuation floor for the stock, we believe. Indeed, at current levels, BENF is trading at a 50%+ discount to tangible book value – seemingly unsustainable in our view. Applying a 3x to 4x TBV multiple – consistent with the low end of the range for comparable stocks – translates into a fair value for BENF of around $4.00.

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