Intrinsic value of NIC - EGOV

Previous Close

$12.76

  Intrinsic Value

$18.43

stock screener

  Rating & Target

buy

+44%

Previous close

$12.76

 
Intrinsic value

$18.43

 
Up/down potential

+44%

 
Rating

buy

We calculate the intrinsic value of EGOV stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  8.40
  8.06
  7.75
  7.48
  7.23
  7.01
  6.81
  6.63
  6.46
  6.32
  6.19
  6.07
  5.96
  5.86
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.20
  5.18
  5.16
Revenue, $m
  365
  394
  425
  457
  490
  524
  559
  597
  635
  675
  717
  760
  806
  853
  902
  954
  1,007
  1,064
  1,122
  1,183
  1,248
  1,315
  1,385
  1,458
  1,535
  1,615
  1,700
  1,788
  1,881
  1,978
Variable operating expenses, $m
  275
  297
  320
  344
  369
  395
  421
  449
  478
  509
  539
  572
  606
  642
  679
  718
  758
  800
  844
  890
  939
  989
  1,042
  1,097
  1,155
  1,216
  1,279
  1,345
  1,415
  1,488
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  275
  297
  320
  344
  369
  395
  421
  449
  478
  509
  539
  572
  606
  642
  679
  718
  758
  800
  844
  890
  939
  989
  1,042
  1,097
  1,155
  1,216
  1,279
  1,345
  1,415
  1,488
Operating income, $m
  90
  97
  105
  112
  121
  129
  138
  147
  157
  167
  177
  188
  199
  211
  223
  236
  249
  263
  278
  293
  309
  325
  343
  361
  380
  400
  421
  443
  466
  490
EBITDA, $m
  93
  100
  108
  116
  125
  133
  143
  152
  162
  172
  183
  194
  205
  217
  230
  243
  257
  271
  286
  301
  318
  335
  353
  371
  391
  412
  433
  456
  479
  504
Interest expense (income), $m
  0
  0
  1
  1
  2
  2
  3
  4
  5
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  19
  20
  21
  23
  24
  26
  28
  30
  32
Earnings before tax, $m
  90
  96
  103
  111
  118
  126
  134
  143
  151
  161
  171
  180
  191
  202
  213
  225
  237
  250
  263
  277
  292
  307
  323
  340
  357
  375
  395
  415
  436
  458
Tax expense, $m
  24
  26
  28
  30
  32
  34
  36
  39
  41
  43
  46
  49
  52
  54
  57
  61
  64
  67
  71
  75
  79
  83
  87
  92
  96
  101
  107
  112
  118
  124
Net income, $m
  66
  70
  76
  81
  86
  92
  98
  104
  111
  117
  125
  132
  139
  147
  155
  164
  173
  182
  192
  202
  213
  224
  236
  248
  261
  274
  288
  303
  318
  334

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  275
  297
  320
  344
  369
  395
  422
  450
  479
  509
  540
  573
  607
  643
  680
  719
  759
  801
  846
  892
  940
  991
  1,043
  1,099
  1,157
  1,217
  1,281
  1,347
  1,417
  1,490
Adjusted assets (=assets-cash), $m
  275
  297
  320
  344
  369
  395
  422
  450
  479
  509
  540
  573
  607
  643
  680
  719
  759
  801
  846
  892
  940
  991
  1,043
  1,099
  1,157
  1,217
  1,281
  1,347
  1,417
  1,490
Revenue / Adjusted assets
  1.327
  1.327
  1.328
  1.328
  1.328
  1.327
  1.325
  1.327
  1.326
  1.326
  1.328
  1.326
  1.328
  1.327
  1.326
  1.327
  1.327
  1.328
  1.326
  1.326
  1.328
  1.327
  1.328
  1.327
  1.327
  1.327
  1.327
  1.327
  1.327
  1.328
Average production assets, $m
  13
  14
  15
  16
  18
  19
  20
  21
  23
  24
  26
  27
  29
  31
  32
  34
  36
  38
  40
  43
  45
  47
  50
  52
  55
  58
  61
  64
  68
  71
Working capital, $m
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
Total debt, $m
  11
  22
  33
  45
  58
  71
  84
  98
  113
  128
  144
  160
  177
  195
  214
  233
  254
  275
  297
  320
  344
  370
  396
  424
  453
  484
  516
  549
  584
  621
Total liabilities, $m
  138
  149
  161
  173
  185
  198
  212
  226
  240
  255
  271
  288
  305
  323
  341
  361
  381
  402
  425
  448
  472
  497
  524
  552
  581
  611
  643
  676
  711
  748
Total equity, $m
  137
  148
  159
  171
  184
  197
  210
  224
  238
  253
  269
  285
  302
  320
  339
  358
  378
  399
  421
  444
  468
  493
  520
  547
  576
  606
  638
  671
  706
  742
Total liabilities and equity, $m
  275
  297
  320
  344
  369
  395
  422
  450
  478
  508
  540
  573
  607
  643
  680
  719
  759
  801
  846
  892
  940
  990
  1,044
  1,099
  1,157
  1,217
  1,281
  1,347
  1,417
  1,490
Debt-to-equity ratio
  0.080
  0.150
  0.210
  0.260
  0.310
  0.360
  0.400
  0.440
  0.470
  0.500
  0.530
  0.560
  0.590
  0.610
  0.630
  0.650
  0.670
  0.690
  0.710
  0.720
  0.740
  0.750
  0.760
  0.780
  0.790
  0.800
  0.810
  0.820
  0.830
  0.840
Adjusted equity ratio
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  66
  70
  76
  81
  86
  92
  98
  104
  111
  117
  125
  132
  139
  147
  155
  164
  173
  182
  192
  202
  213
  224
  236
  248
  261
  274
  288
  303
  318
  334
Depreciation, amort., depletion, $m
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
Funds from operations, $m
  69
  74
  79
  85
  90
  96
  102
  109
  116
  123
  130
  137
  145
  153
  162
  171
  180
  190
  200
  211
  222
  233
  246
  258
  272
  286
  300
  316
  332
  349
Change in working capital, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Cash from operations, $m
  69
  74
  79
  85
  91
  97
  103
  109
  116
  123
  130
  138
  145
  154
  162
  171
  180
  190
  200
  211
  222
  234
  246
  259
  272
  286
  301
  316
  332
  349
Maintenance CAPEX, $m
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
New CAPEX, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
Cash from investing activities, $m
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
Free cash flow, $m
  66
  70
  75
  81
  86
  92
  98
  104
  110
  117
  124
  131
  138
  146
  154
  163
  172
  181
  191
  201
  211
  223
  234
  246
  259
  272
  286
  301
  316
  332
Issuance/(repayment) of debt, $m
  11
  11
  12
  12
  12
  13
  13
  14
  15
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  30
  32
  33
  35
  37
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  11
  11
  12
  12
  12
  13
  13
  14
  15
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  30
  32
  33
  35
  37
Total cash flow (excl. dividends), $m
  76
  81
  87
  93
  99
  105
  111
  118
  125
  132
  139
  147
  155
  164
  173
  182
  192
  202
  213
  224
  236
  248
  261
  274
  288
  303
  318
  334
  351
  369
Retained Cash Flow (-), $m
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -36
Prev. year cash balance distribution, $m
  42
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  107
  70
  75
  81
  86
  92
  98
  104
  110
  117
  124
  131
  138
  146
  154
  163
  172
  181
  191
  201
  212
  223
  234
  246
  259
  273
  287
  301
  316
  333
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  103
  64
  66
  66
  67
  67
  66
  65
  63
  61
  59
  56
  53
  49
  45
  41
  37
  33
  29
  26
  22
  18
  15
  13
  10
  8
  6
  5
  3
  3
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

NIC Inc. is a provider of digital government services that help governments use technology to provide services to businesses and citizens. The Company operates through Outsourced Portals segment. The Company offers its services through two channels: primary outsourced portal businesses, and software and services businesses. In the primary outsourced portal businesses, the Company enters into contracts with state and local governments to design, build, and operate Internet-based, enterprise-wide portals on their behalf. Its software and services businesses include its subsidiaries that provide software development and payment processing services, other than outsourced portal services, to state and local governments, as well as federal agencies. The Company's outsourced portal businesses include interactive government services (IGS), driver history records (DHR), Portal software development and services, and Portal management.

FINANCIAL RATIOS  of  NIC (EGOV)

Valuation Ratios
P/E Ratio 15
Price to Sales 2.6
Price to Book 6.3
Price to Tangible Book
Price to Cash Flow 10.8
Price to Free Cash Flow 12
Growth Rates
Sales Growth Rate 8.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 60%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 23.2%
Ret/ On Assets - 3 Yr. Avg. 21.9%
Return On Total Capital 44.8%
Ret/ On T. Cap. - 3 Yr. Avg. 40.9%
Return On Equity 44.8%
Return On Equity - 3 Yr. Avg. 40.9%
Asset Turnover 1.3
Profitability Ratios
Gross Margin 41.5%
Gross Margin - 3 Yr. Avg. 41%
EBITDA Margin 26.7%
EBITDA Margin - 3 Yr. Avg. 26.3%
Operating Margin 24.5%
Oper. Margin - 3 Yr. Avg. 23.5%
Pre-Tax Margin 24.5%
Pre-Tax Margin - 3 Yr. Avg. 23.5%
Net Profit Margin 17.6%
Net Profit Margin - 3 Yr. Avg. 15.4%
Effective Tax Rate 28.2%
Eff/ Tax Rate - 3 Yr. Avg. 34.5%
Payout Ratio 76.8%

EGOV stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the EGOV stock intrinsic value calculation we used $336.508 million for the last fiscal year's total revenue generated by NIC. The default revenue input number comes from 0001 income statement of NIC. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our EGOV stock valuation model: a) initial revenue growth rate of 8.4% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for EGOV is calculated based on our internal credit rating of NIC, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of NIC.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of EGOV stock the variable cost ratio is equal to 75.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for EGOV stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for NIC.

Corporate tax rate of 27% is the nominal tax rate for NIC. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the EGOV stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for EGOV are equal to 3.6%.

Life of production assets of 2.1 years is the average useful life of capital assets used in NIC operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for EGOV is equal to -0.7%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $168.242 million for NIC - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 66.514 million for NIC is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of NIC at the current share price and the inputted number of shares is $0.8 billion.

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COMPANY NEWS

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▶ NIC's Earnings Grow Thanks to a Lowered Tax Bill   [Nov-05-18 11:26AM  Motley Fool]
▶ NIC: 3Q Earnings Snapshot   [05:02PM  Associated Press]
▶ Are NIC Incs (NASDAQ:EGOV) Interest Costs Too High?   [Oct-30-18 11:45AM  Simply Wall St.]
▶ Serve Kentucky Launches Website Redesign   [09:26AM  Business Wire]
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▶ Information Network of Arkansas Takes Top Honor   [Oct-09-18 12:09PM  Business Wire]
▶ Utah Wins First Place in Government Experience Awards   [Oct-04-18 11:00AM  Business Wire]
▶ NIC Inc. Awarded New Federal Contract   [02:44PM  Business Wire]
▶ Arkansas Property Tax Payments Due October 15   [Oct-01-18 09:07AM  Business Wire]
▶ Idahos Prompt Pay to Receive a Government Experience Award   [Sep-14-18 10:53AM  Business Wire]
▶ Nebraska Wins Two Coveted Government Experience Awards   [Sep-13-18 08:00AM  Business Wire]
▶ 5 Undervalued Stocks That Are Growing Earnings   [Sep-05-18 03:45PM  GuruFocus.com]
▶ Awards Flowing for Virginia Winery Distribution Company   [Aug-15-18 10:33AM  Business Wire]
▶ NIC Takes on the Opioid Epidemic   [Aug-12-18 07:17AM  Motley Fool]
▶ NIC: 2Q Earnings Snapshot   [05:11PM  Associated Press]
▶ City of Holyrood, Kansas, Now Accepts Electronic Payments   [Jul-16-18 11:24AM  Business Wire]

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