Rimmy Malhotra of Nicoya Capital presented his in-depth investment thesis on Nelnet (NYSE: NNI) at Best Ideas 2018.
Nelnet may appear to be a leveraged company whose core student loan business is in decline, and its second-largest business line, government student loan servicing, is exposed to near-term renewal risk by the U.S. government. Actually, while the core student loan business is in decline, the market misunderstands the other underlying businesses. The core student loan book is federally guaranteed, match-funded with non-recourse debt, and is in rapid run-off. The federally guaranteed cash flows from this business represent roughly 75% of the company’s recent market capitalization. Over the past decade, Nelnet has diversified into multiple other businesses that are thriving and growing. Rimmy believes that over the next three years Nelnet may become worth more than double the recent stock price, coupled with strong downside protection. Founder Mike Dunlap started the company with a $50,000 equity investment in 1996, which he grew to $109 million by the IPO in 2003. In the IPO, he raised another $168 million of equity capital and has growing equity to $2+ billion in tangible book value and, according to Rimmy, even more in intrinsic value.
About the instructor:
Mr. Rimmy Malhotra is Portfolio Manager at Nicoya Capital. The Nicoya Fund is an investment partnership with limited investing constraints. Coupled with a stable of very long-term oriented partners we invest in a concentrated and deliberate fashion across a wide variety of industries, and company sizes. Currently, Rimmy serves on the board of Command Center International (ticker: CCNI), and previously served on the board of Peerless Systems.
Rimmy served for three years as a United States Peace Corps Volunteer in Central America. He earned an MBA in Finance from The Wharton School and a master’s degree in International Affairs from The School of Arts & Sciences at the University of Pennsylvania where he is a Lauder Fellow. Mr. Malhotra holds undergraduate degrees in Computer Science and Economics from Johns Hopkins University.
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