Intrinsic value of NIC - EGOV

Previous Close

$16.05

  Intrinsic Value

$17.45

stock screener

  Rating & Target

hold

+9%

Previous close

$16.05

 
Intrinsic value

$17.45

 
Up/down potential

+9%

 
Rating

hold

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 2017), $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 1.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.31
  5.28
  5.25
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
  5.04
Revenue, $m
  357
  378
  399
  422
  445
  470
  496
  523
  551
  580
  611
  643
  677
  713
  750
  789
  829
  872
  917
  964
  1,013
  1,065
  1,119
  1,176
  1,235
  1,298
  1,364
  1,433
  1,505
  1,581
Variable operating expenses, $m
  269
  285
  301
  318
  336
  355
  374
  394
  416
  438
  461
  485
  510
  537
  565
  594
  625
  657
  691
  726
  763
  802
  843
  886
  931
  978
  1,028
  1,079
  1,134
  1,191
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
  269
  285
  301
  318
  336
  355
  374
  394
  416
  438
  461
  485
  510
  537
  565
  594
  625
  657
  691
  726
  763
  802
  843
  886
  931
  978
  1,028
  1,079
  1,134
  1,191
Operating income, $m
  87
  93
  98
  103
  109
  115
  122
  128
  135
  143
  151
  159
  167
  176
  185
  194
  204
  215
  226
  238
  250
  262
  276
  290
  305
  320
  336
  353
  371
  390
EBITDA, $m
  90
  95
  100
  106
  112
  118
  124
  131
  138
  146
  153
  161
  170
  179
  188
  198
  208
  219
  230
  242
  254
  267
  281
  295
  310
  326
  342
  359
  377
  396
Interest expense (income), $m
  0
  0
  0
  1
  1
  2
  2
  3
  3
  4
  4
  5
  6
  6
  7
  8
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  24
Earnings before tax, $m
  87
  92
  97
  102
  108
  113
  119
  125
  131
  138
  146
  153
  161
  169
  177
  186
  195
  205
  215
  226
  237
  249
  261
  274
  287
  302
  316
  332
  349
  366
Tax expense, $m
  24
  25
  26
  28
  29
  31
  32
  34
  36
  37
  39
  41
  43
  46
  48
  50
  53
  55
  58
  61
  64
  67
  70
  74
  78
  81
  85
  90
  94
  99
Net income, $m
  64
  67
  71
  75
  79
  83
  87
  91
  96
  101
  106
  112
  117
  123
  129
  136
  142
  150
  157
  165
  173
  181
  190
  200
  210
  220
  231
  242
  254
  267

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
  269
  285
  301
  318
  336
  355
  374
  395
  416
  438
  461
  486
  511
  538
  566
  595
  626
  658
  692
  727
  765
  804
  845
  887
  932
  980
  1,029
  1,081
  1,136
  1,193
Adjusted assets (=assets-cash), $m
  269
  285
  301
  318
  336
  355
  374
  395
  416
  438
  461
  486
  511
  538
  566
  595
  626
  658
  692
  727
  765
  804
  845
  887
  932
  980
  1,029
  1,081
  1,136
  1,193
Revenue / Adjusted assets
  1.327
  1.326
  1.326
  1.327
  1.324
  1.324
  1.326
  1.324
  1.325
  1.324
  1.325
  1.323
  1.325
  1.325
  1.325
  1.326
  1.324
  1.325
  1.325
  1.326
  1.324
  1.325
  1.324
  1.326
  1.325
  1.324
  1.326
  1.326
  1.325
  1.325
Average production assets, $m
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  32
  34
  36
  38
  39
  41
  44
  46
  48
  51
  53
  56
  59
  62
  65
  68
Working capital, $m
  -94
  -100
  -105
  -111
  -118
  -124
  -131
  -138
  -145
  -153
  -161
  -170
  -179
  -188
  -198
  -208
  -219
  -230
  -242
  -254
  -267
  -281
  -295
  -310
  -326
  -343
  -360
  -378
  -397
  -417
Total debt, $m
  7
  15
  24
  32
  41
  50
  60
  70
  81
  92
  104
  116
  129
  142
  156
  171
  187
  203
  220
  237
  256
  276
  296
  318
  340
  364
  389
  415
  442
  471
Total liabilities, $m
  135
  143
  151
  160
  169
  178
  188
  198
  209
  220
  232
  244
  257
  270
  284
  299
  314
  330
  347
  365
  384
  403
  424
  445
  468
  492
  517
  543
  570
  599
Total equity, $m
  134
  142
  150
  159
  167
  177
  186
  196
  207
  218
  230
  242
  255
  268
  282
  296
  312
  328
  345
  362
  381
  400
  421
  442
  464
  488
  513
  538
  566
  594
Total liabilities and equity, $m
  269
  285
  301
  319
  336
  355
  374
  394
  416
  438
  462
  486
  512
  538
  566
  595
  626
  658
  692
  727
  765
  803
  845
  887
  932
  980
  1,030
  1,081
  1,136
  1,193
Debt-to-equity ratio
  0.060
  0.110
  0.160
  0.200
  0.250
  0.290
  0.320
  0.360
  0.390
  0.420
  0.450
  0.480
  0.510
  0.530
  0.550
  0.580
  0.600
  0.620
  0.640
  0.660
  0.670
  0.690
  0.700
  0.720
  0.730
  0.750
  0.760
  0.770
  0.780
  0.790
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
  64
  67
  71
  75
  79
  83
  87
  91
  96
  101
  106
  112
  117
  123
  129
  136
  142
  150
  157
  165
  173
  181
  190
  200
  210
  220
  231
  242
  254
  267
Depreciation, amort., depletion, $m
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
Funds from operations, $m
  66
  69
  73
  77
  81
  85
  89
  94
  99
  104
  109
  114
  120
  126
  133
  139
  146
  153
  161
  169
  177
  186
  195
  205
  215
  226
  237
  249
  261
  274
Change in working capital, $m
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
Cash from operations, $m
  71
  75
  79
  83
  87
  92
  96
  101
  106
  112
  117
  123
  129
  136
  142
  149
  157
  165
  173
  181
  190
  200
  210
  220
  231
  242
  254
  267
  280
  294
Maintenance CAPEX, $m
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
New CAPEX, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
Cash from investing activities, $m
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -9
Free cash flow, $m
  69
  72
  76
  80
  84
  89
  93
  98
  103
  108
  113
  119
  125
  131
  138
  145
  152
  159
  167
  175
  184
  193
  203
  213
  223
  234
  246
  258
  271
  284
Issuance/(repayment) of debt, $m
  7
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
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  
  7
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
Total cash flow (excl. dividends), $m
  76
  80
  84
  89
  93
  98
  103
  108
  114
  119
  125
  131
  138
  145
  152
  159
  167
  175
  184
  193
  203
  213
  223
  234
  246
  258
  271
  284
  298
  313
Retained Cash Flow (-), $m
  -8
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -27
  -29
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
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
Cash available for distribution, $m
  110
  73
  76
  80
  84
  89
  93
  98
  103
  108
  113
  119
  125
  131
  138
  145
  152
  159
  167
  176
  184
  193
  203
  213
  223
  234
  246
  258
  271
  284
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
  106
  66
  66
  66
  65
  64
  63
  61
  59
  57
  54
  51
  48
  44
  40
  37
  33
  29
  26
  22
  19
  16
  13
  11
  9
  7
  5
  4
  3
  2
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 18.9
Price to Sales 3.3
Price to Book 7.9
Price to Tangible Book
Price to Cash Flow 13.6
Price to Free Cash Flow 15.1
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 $337 million for the last fiscal year's total revenue generated by NIC. The default revenue input number comes from 2017 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 5.9% 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 75.5%.

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 1.6%.

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 4.3%.

Life of production assets of 10 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 -26.4%. 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 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 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 $1.1 billion.

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COMPANY NEWS

▶ City of Holyrood, Kansas, Now Accepts Electronic Payments   [Jul-16-18 11:24AM  Business Wire]
▶ Salt Lake City Launches New Web Presence with SLC.gov   [Jun-26-18 11:00AM  Business Wire]
▶ Colorado Citizens Now Can Skip the Trip to DMV with Gov2Go   [Jun-18-18 03:00PM  Business Wire]
▶ Utah.Gov Expands Google Assistant Offering   [11:00AM  Business Wire]
▶ Library of Congress Marks First Anniversary of eCRB Launch   [Jun-13-18 07:24AM  Business Wire]
▶ Kentucky Department of Revenue Launches Tax Answers Website   [Jun-08-18 05:01PM  Business Wire]
▶ Renew Your Boat and Outboard Motor Straight from the Lake   [May-17-18 11:00AM  Business Wire]
▶ South Carolina Secretary of State Wins International Award   [May-08-18 09:00AM  Business Wire]
▶ Maryland Fishing Report Now Available on Amazons Alexa   [May-04-18 03:29PM  Business Wire]
▶ Tax Savings Drive NIC's Profits Higher   [02:36PM  Motley Fool]
▶ NIC: 1Q Earnings Snapshot   [Apr-30-18 04:07PM  Associated Press]
▶ Top NasdaqGS Defensive Stocks To Buy   [04:05PM  Simply Wall St.]
▶ NIC Inc. to Host Earnings Call   [12:30PM  ACCESSWIRE]
▶ Kentucky Labor Cabinet Launches New Website   [08:00AM  Business Wire]
▶ NIC moves a step closer to $182M contract with USDA   [Apr-11-18 03:31PM  American City Business Journals]
▶ NIC to Host Annual Stockholder Meeting on May 1   [Apr-09-18 08:00AM  Business Wire]
▶ Apply Online Now for the 2018 Maine Moose Permit Lottery   [Apr-04-18 08:00AM  Business Wire]
▶ NIC to Announce First Quarter 2018 Results on April 30   [Apr-03-18 08:00AM  Business Wire]
▶ NIC to Announce 2018 Financial Guidance on March 8   [Mar-06-18 05:48PM  Business Wire]
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