Chris Karlin of Aquitania Capital Management presented his in-depth investment thesis on NIC (Nasdaq: EGOV) at Wide-Moat Investing Summit 2018.

Thesis summary:

NIC provides digital services and solutions to governments. NIC’s outsourced portal businesses enter into long-term contracts with governments to design and operate enterprise-wide online portals that allow businesses and citizens to access government information online.

NIC’s business is entirely self-financing, with minimal capital needs, carrying no debt, and a significant cash balance. Concerns over the loss of a large contract and slow growth have compressed the valuation even as the new tax bill should provide a 10-15% FCF boost.

NIC recently traded at its lowest valuation since 2008 at 11x TTM EV/EBIT, 14x 2019E EV/EBIT (likely ebb-year), and 10x normalized EV/EBIT. Either growth investments are successful and boost the valuation or growth investments are unsuccessful and the cost structure shrinks in response. Without the need for external financing, there is little reason why NIC should be a public company, and Chris believes it could attract interest from strategic and financial acquirers. Using conservative assumptions, Chris’s target price is $19 per share on normalized earnings and $22 per share in an M&A scenario.

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About the instructor:

Christopher Karlin has been in the investment business since 1991. Prior to founding Aquitania Capital Management in 2012, Christopher held positions as a Research Analyst and Portfolio Manager at First Pacific Advisors, Kestrel Investment Management and Fairview Capital Investment Management. Christopher interned with Farallon Capital Management while pursuing his MBA. He began his career with Wells Fargo Nikko Investment Advisors which later became a part of Blackrock. Christopher received his BBA from the University of Wisconsin in 1990 his MBA from Yale University in 1998 and has held the CFA designation since 1994.