Intrinsic value of NIC Inc. - EGOV

Previous Close

$17.28

  Intrinsic Value

$13.91

stock screener

  Rating & Target

hold

-19%

Previous close

$17.28

 
Intrinsic value

$13.91

 
Up/down potential

-19%

 
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 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 1.1

 

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, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  352
  360
  369
  380
  391
  404
  418
  432
  448
  466
  484
  504
  525
  547
  570
  595
  622
  650
  679
  711
  744
  778
  815
  854
  894
  937
  982
  1,029
  1,079
  1,132
Variable operating expenses, $m
  270
  276
  283
  291
  300
  310
  320
  332
  344
  357
  370
  385
  401
  418
  436
  455
  475
  496
  519
  543
  568
  595
  623
  652
  683
  716
  750
  786
  824
  865
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
  270
  276
  283
  291
  300
  310
  320
  332
  344
  357
  370
  385
  401
  418
  436
  455
  475
  496
  519
  543
  568
  595
  623
  652
  683
  716
  750
  786
  824
  865
Operating income, $m
  82
  84
  86
  88
  91
  94
  97
  101
  104
  109
  114
  119
  124
  129
  135
  141
  147
  153
  160
  168
  176
  184
  192
  201
  211
  221
  232
  243
  255
  267
EBITDA, $m
  86
  88
  90
  93
  96
  99
  102
  106
  110
  114
  118
  123
  128
  134
  140
  146
  152
  159
  166
  174
  182
  190
  199
  209
  219
  229
  240
  252
  264
  277
Interest expense (income), $m
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  11
  11
Earnings before tax, $m
  82
  83
  86
  88
  90
  93
  96
  100
  103
  107
  112
  117
  121
  126
  132
  137
  143
  149
  156
  163
  170
  178
  186
  194
  203
  213
  223
  233
  244
  256
Tax expense, $m
  22
  23
  23
  24
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
  37
  39
  40
  42
  44
  46
  48
  50
  52
  55
  57
  60
  63
  66
  69
Net income, $m
  60
  61
  62
  64
  66
  68
  70
  73
  75
  78
  82
  85
  89
  92
  96
  100
  104
  109
  114
  119
  124
  130
  136
  142
  148
  155
  163
  170
  178
  187

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
  212
  217
  223
  229
  236
  243
  252
  261
  270
  281
  292
  304
  316
  330
  344
  359
  375
  392
  410
  428
  448
  469
  491
  515
  539
  565
  592
  620
  651
  682
Adjusted assets (=assets-cash), $m
  212
  217
  223
  229
  236
  243
  252
  261
  270
  281
  292
  304
  316
  330
  344
  359
  375
  392
  410
  428
  448
  469
  491
  515
  539
  565
  592
  620
  651
  682
Revenue / Adjusted assets
  1.660
  1.659
  1.655
  1.659
  1.657
  1.663
  1.659
  1.655
  1.659
  1.658
  1.658
  1.658
  1.661
  1.658
  1.657
  1.657
  1.659
  1.658
  1.656
  1.661
  1.661
  1.659
  1.660
  1.658
  1.659
  1.658
  1.659
  1.660
  1.657
  1.660
Average production assets, $m
  15
  15
  16
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  37
  38
  40
  42
  44
  46
  49
Working capital, $m
  6
  6
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
Total debt, $m
  2
  4
  7
  10
  13
  17
  21
  25
  30
  34
  40
  45
  51
  58
  64
  72
  79
  87
  96
  105
  114
  124
  135
  146
  157
  169
  182
  196
  210
  225
Total liabilities, $m
  101
  103
  106
  109
  112
  116
  120
  124
  128
  133
  139
  144
  150
  157
  163
  170
  178
  186
  195
  203
  213
  223
  233
  244
  256
  268
  281
  295
  309
  324
Total equity, $m
  111
  114
  117
  120
  124
  128
  132
  137
  142
  147
  153
  159
  166
  173
  181
  188
  197
  206
  215
  225
  235
  246
  258
  270
  283
  297
  311
  326
  342
  358
Total liabilities and equity, $m
  212
  217
  223
  229
  236
  244
  252
  261
  270
  280
  292
  303
  316
  330
  344
  358
  375
  392
  410
  428
  448
  469
  491
  514
  539
  565
  592
  621
  651
  682
Debt-to-equity ratio
  0.020
  0.040
  0.060
  0.080
  0.110
  0.130
  0.160
  0.180
  0.210
  0.230
  0.260
  0.280
  0.310
  0.330
  0.360
  0.380
  0.400
  0.420
  0.450
  0.470
  0.480
  0.500
  0.520
  0.540
  0.560
  0.570
  0.590
  0.600
  0.620
  0.630
Adjusted equity ratio
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525
  0.525

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  60
  61
  62
  64
  66
  68
  70
  73
  75
  78
  82
  85
  89
  92
  96
  100
  104
  109
  114
  119
  124
  130
  136
  142
  148
  155
  163
  170
  178
  187
Depreciation, amort., depletion, $m
  4
  4
  5
  5
  5
  5
  5
  5
  5
  5
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
Funds from operations, $m
  64
  65
  67
  69
  71
  73
  75
  78
  81
  83
  86
  90
  93
  97
  101
  105
  110
  114
  119
  125
  130
  136
  143
  149
  156
  163
  171
  179
  188
  196
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
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
Cash from operations, $m
  64
  65
  67
  69
  71
  73
  75
  78
  80
  83
  86
  89
  93
  97
  101
  105
  109
  114
  119
  124
  130
  136
  142
  149
  155
  163
  170
  178
  187
  196
Maintenance CAPEX, $m
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
New CAPEX, $m
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
Cash from investing activities, $m
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
Free cash flow, $m
  61
  62
  63
  65
  67
  69
  71
  73
  76
  79
  81
  84
  88
  91
  95
  99
  103
  107
  112
  117
  122
  128
  134
  140
  146
  153
  160
  168
  176
  184
Issuance/(repayment) of debt, $m
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
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  
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
Total cash flow (excl. dividends), $m
  62
  64
  66
  68
  70
  72
  75
  78
  80
  84
  86
  90
  94
  97
  102
  106
  111
  115
  121
  126
  132
  138
  144
  151
  158
  165
  173
  181
  190
  199
Retained Cash Flow (-), $m
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
Prev. year cash balance distribution, $m
  103
  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
  163
  62
  63
  65
  66
  68
  71
  73
  75
  78
  81
  84
  87
  90
  94
  98
  102
  107
  111
  116
  121
  127
  133
  139
  145
  152
  159
  166
  174
  183
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
  156
  56
  55
  53
  52
  50
  48
  46
  43
  41
  38
  36
  33
  30
  28
  25
  22
  20
  17
  15
  13
  11
  9
  7
  6
  4
  3
  3
  2
  1
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 Inc. (EGOV)

Valuation Ratios
P/E Ratio 20.4
Price to Sales 3.6
Price to Book 8.5
Price to Tangible Book
Price to Cash Flow 14.6
Price to Free Cash Flow 16.3
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 $345 million for the last fiscal year's total revenue generated by NIC Inc.. The default revenue input number comes from 0001 income statement of NIC Inc.. 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 2% 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 Inc., 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 Inc..
    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 76.8%.

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 Inc..

Corporate tax rate of 27% is the nominal tax rate for NIC Inc.. 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 4.3%.

Life of production assets of 2.2 years is the average useful life of capital assets used in NIC Inc. 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 1.6%. 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 - $211.689 million for NIC Inc. - 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 66.432 million for NIC Inc. 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 Inc. at the current share price and the inputted number of shares is $1.1 billion.

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