Chit Chat Stocks - Nelnet (NNI) with Aaron Edelheit

Episode Date: November 4, 2021

Nelnet is an United States-based conglomerate. Most commonly known for providing administration and repayment of student loans, the company also has many other offerings. Aaron brings his expert knowledge of Nelnet for a great discussion regarding the history and future of the company. Enjoy the show! Our Thursday Deep Dives are sponsored by Quartr, the new way of doing company research. Access conference calls, presentations, transcripts, and more for FREE on your mobile device. Download Quartr on the App Store here: https://apps.apple.com/us/app/quartr-investor-relations/id1552412128  Download Quartr on the Google Play Store here: https://play.google.com/store/apps/details?id=se.quartr.android  Special promotion through the end of 2021: Subscribe to 7investing with the code "chitchat" and get $50 off your annual subscription: https://7investing.com/subscribe/ Want updates on future shows and projects? Follow us on Twitter: https://twitter.com/chitchatmoney Interested in more of Aaron's work? Find his Substack here: https://mindsetvalue.substack.com/ Rather watch us on video? Subscribe to our YouTube channel: https://www.youtube.com/channel/UCG5Ni-SI-jyrEsoNUhqftNQ  Contact us: [e-mail]  Timestamps Nelnet | (6:43) Management & more | (32:14) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. Today, we have an interview with Aaron Edelheit, and we talk about Nelnet. I guess it's a good time to disclose that we and our clients in the Arch Capital portfolio own Nelnet. At this time. You could be listening to this three years from now or whatever, but at the time of recording, yeah. Yeah. So you're going to probably hear some bias from us, and I believe Aaron does as well. So yeah, just know we own it. But any highlights from the interview? Yeah. So we know the business well, and there wasn't some of the stuff I'd already known before, but if you're listening, you'll figure it out. He really explains the business well. But the one thing that he explained was the solar investments. So the company, and if you're an investor, you might be worried about what they're doing. They're like, oh, they're pouring all this money into solar investments. Nothing's coming out right now. You're like, why are they

making these investments? I'm not seeing any earnings show up. But he explains like, look, they've done this before, whatever, kind of, they have a history of doing things like this to make these heavy upfront investments. He kind of explains all that. And that kind of framed that part of the business a lot better than I had before. So that was probably my favorite, but either way, the huddle part, where if you know that business, anyone that knows high school football knows about huddle, they own part of it. So that's the most exciting one to hopefully draw some uh listeners i'd also say we always sort of ask ask them where uh listeners can find aaron but i i really do recommend going to his sub stack because you and i read it every time there's

something else that comes out something new exactly he's one of the investors that we look to for inspiration on ideas all the time so uh we we really like him um uh but you'll you'll see for yourself before we get to the interview we want to talk about our friends our sponsor quarter. They are a comprehensive investor relations app. I'm trying to find the right way to describe them, but earning season is upon us. Well, it's a startup, so they're evolving. It's going to get better and better over time. That's right. And if you are listening to conference calls or if you're reading conference call transcripts, anything like that, this is the time to download quarter. I don't know how you could get through an earning season without them.

Now that I have them, it's incredibly easy to listen to your conference calls. You can just plug it in on your drive uh maybe on the walk you can listen to it at two times speed um and if you uh for anyone that's watched on youtube we've got a banner hanging up next to us here with they're very nice they uh helped yeah helped get a nice uh accessory for the studio and it looks great all right uh and then just a reminder it's quarter q u a r t r they also added something new which i'm pulling up right now you can uh i believe you can clip you can save audio clips Am I getting that right? Or you can timestamp it and ask questions about it.

It's evolving, but, you know, it's a way to give feedback on a conference call to management teams and hopefully, you know, get a better conversation between investors and companies. Yeah, we are seeing the hubbub of the company grow before our eyes on Twitter. You can see how many people are using the app. It's 100% free. Go download it on iOS or Android. It's Q-U-A-R-T-R, no E. You can also follow him on Twitter at quarter underscore app. Without further ado, let's get to the interview.

Welcome to Chit Chat Money. On this show, hosts Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. anything discussed on chit chat money by ryan or brett or any other podcast guest is not formal advice or recommendation now please enjoy this episode

all right today we are welcomed by aaron edelheit uh he is now two-time guest of the show i believe he came on and talked about the french lottery company last time i think that was almost a year ago now but today we're talking about Nelnet uh listeners may have heard us speak about it before uh but before we get into Nelnet you recently or are about to uh launch a fund do you kind of want to talk about what that is and maybe give less yeah sure i i i'm launching a uh fund that's dedicated to invest in uh the cannabis sector specifically publicly traded stocks that are focused on the US Canada sector. And I believe just a quick summary of $100 billion revenue market, where most of the sales are illegal today, maybe 25 billion are legal. And it's going to 200

billion over the next 10 years, possibly more. And most of it's going to be legal. And the problem is because of the difference between federal and state legality. If you touch the plant in the US, You have to trade. You can't trade on the New York Stock Exchange or Nasdaq. And so these stocks trade on secondary and tertiary Canadian exchanges. They have limited liquidity and they can be volatile. And I'm basically launching a fund to take advantage of the fact that you can buy companies with 10 years plus growth ahead of them with substantial economic moats that are trading for five and six times unlevered next year's cash flow. Some of them growing triple digits. And the great thing about your investment style is you like to write publicly about it.

And you wrote, I think, in conjunction with this, something called the Cannabis Investing Manifesto. where could someone find that to learn more about you know yeah they they can find it on my substack uh which is mindsetvalue.substack.com or they can go to mindsetcapital.com it's in the report section and maybe you can include a note in the in the if you have show notes or something but it's uh yeah i basically wrote uh one of the main things is i just wanted to highlight the opportunity to investors. I don't see a lot of peer by peers investing in the cannabis space. And I'm just calling out the opportunity, which I think that if you married the right long-term capital to this and didn't worry about the volatility, that over the next five or 10 years,

you're going to produce some pretty amazing returns. One more question before we move to Nelnet, what is the structure of the fund? Is this like a private partnership or is it? Yeah, it's just a private partnership for accredited investors. Okay. All right. Let's move to Nelnet. So it's, I guess, a mini conglomerate. So could you maybe describe some of the parts of the business and it's sort of unique in its position now with the melting ice cube. So can you describe kind of how they got to where they are now? Yeah. So Nelnet was started to invest and service student loans. Student loans are one of the safest assets to buy. As an investor, they're like 98% backed by the federal government,

at least the ones that are not private loans. And so Nelnet went public, I want to say like 17 years ago, basically primarily focusing on not only owning student loans, a large book of student loans, but also to service loans for the government and for private lenders. And over the years, they have used those cash flows coming off their student loan book and coming from their servicing business to invest in a bunch of really interesting businesses. I call Nelnet the quiet technology compounder because when you look at it, it looks like a financial services company. It looks like a student loan company, but it's actually a technology company.

And what they're specifically doing is they're taking, in my view, the Berkshire Hathaway model of using insurance to fund all these investments into companies and investments, but using insurance as that vehicle to generate cash flow. But what Nelnet's doing is using student loans. So now what you have with Nelnet is they have this large student book that's now in runoff and billions of dollars of cash flow are going to come back to their um uh to their balance sheet um and you have uh basically you have a payment uh processing for k through 12 schools in a boring division called nelnet business services this is the other the big thing when i talk about them being quiet they are anti-promotional you we were talking

before the interview the ceo you've never seen a video with him uh they don't hold quarterly conference calls. They have a boring division called Nelnet Business Services, and you'd never know that they help the payment processing and software for K-12 private schools. They have 40% market share. And so, pre-COVID, they were growing at 20% or 25% a year with 25% EBITDA margins. And I expect that to resume. You kind of had a little hiccup with COVID and school not being in session and everything but it's really interesting their quarterly numbers will be coming out and um you know there has been a big surge into enrollment in private schools because of covid and all the problems around that um and so i'm expecting to see some really

positive uh uh comparison to last year but also some some real uh interesting i'm hoping to see a lot of positive numbers there in the next couple of quarters. But you have this incredible payments business. And you just look around on Wall Street and the valuations that people pay for payments companies, especially if you have the market share that Nelnet has. And so that's one investment. They also used to own this Fiverr network division. They monetized about half of it. to a private equity uh company they have about 45 percent of that and it's growing uh pretty fast um they also own uh 20 percent of huddle uh which is a basically is this incredible company no one's ever heard of at least in the no one talks about in investment circles um which basically helps

video analysis um you know social media posting of highlights of basically all high school college any kind of sports uh um you know nhl football etc basketball um and they just have like a lock on the market and um i believe that that investment is going to be very very valuable uh one of the things that's really been interesting is they're getting heavily into renewable energy, um, basically originating financing, uh, renewable energy prod projects. Um, and again, I think they're following the student loan playbook where they have a lot of experience, um, kind of investing upfront and then setting up a long stream of cashflow payments. And so can you imagine your high school, your college, do you, are you really, do you really

know what you're doing with a solar project or to to uh lower your energy costs and make your campus more green now net can come in and basically help you with uh soup to nuts um and in the meantime fund everything and then have a long stream of cash flows uh and you're you're seeing them grow that very rapidly um and then they have another you know they're they've also i have a bank that they've started very quietly. And the underlying story here is you have kind of master capital allocators who are using this income stream and these cash flows of student loans to make wonderful investments and grow businesses and business lines over time. And it shows in that they went public, and it was very exciting when they went public of student loans,

It went public at eight times book. Now they trade at one times book. And the book value has basically grown over 17% a year, compounded annually for 17 years. And it's just a remarkable, remarkable number. And I believe the stocks are like 84. Book value should end the year in the high 70s, like $78, $79 a share. And by the end of next year, it's just on the track that they're doing and their earnings, it should be in the high 80s. And you look at a net asset value, and in my humble estimation, it's at least $130 a year. And that's compounding at like 15% to 20% a year could could go faster depending on uh the value they're growing and so to me i just find the the management is exceptional during covid uh uh the stock plunged and management jumped in

and in one quarter alone bought back four percent of the entire company and so it's this it's this this really wonderful management team that understands what they're doing is not promotional in any way, shape or form. And they're just, they're just generating tremendous amounts of value. And that you're just not, you're just not seeing that you're starting to see it reflect in the stock price. And you're going to start seeing it more and more because the book value is starting to grow basically fast. For a while, it was like, well, it's a finance company that trades at a premium to book. Why should it? But now, and this is part of the reason I've been writing about it and telling people is it's just a pretty amazing story that not many people have talked about.

And Ken, so, you know, the thesis is strong capital allocators trading at a huge discount to say, you know, either, well, what the future book value would be or current intrinsic value. Can you explain for anyone that may be confused about stuff like this, anyone that's not, you know, doesn't know all the finance terms, what will you mean by how like, you know, they have the software and payments company that is not really getting accounted for and the huddle investment, how that's not getting reflected in the current either book value or intrinsic value? Maybe give some reference to some of the numbers there. Yeah. So just as an example, it's possible that the payments, Nelnet Business Services,

if this was just its own company and it was publicly traded and it was called something really cool like stripe or no vowels can't have a vowel on it yeah yeah yeah yeah it's just just something really exciting um and it was its own business and it had 25% EBITDA margins and a lock of 40% uh market share um of the k-12 market and it was growing like this that it would get some crazy uh multiple of that and you know this is a company that is going to be doing you know somewhere depending on the recovery and private schools you know like 75 80 million dollars of so uh you know i look at you know nelnet and if i just uh look up it today you know the market cap is $3 billion. And you're looking at a company in today's market that the payments business by

itself is possibly a $2 billion market cap. And so that's hidden inside in this boring division called Nelnet Business Services. And meanwhile, Nelnet is also sitting on this massive student loan book, that's probably worth, you know, I don't know, another billion and a half, you know, dollars. And then the other pieces. So part of what we're talking about is, you know, book value is kind of like a, it's more of an accounting term, it's a it's a conservative way to value, you know, the difference between the assets and liabilities. And that that's growing is just showing that they're producing value in cash flows. But if the three of us were to somehow magically buy or take control of Nelnet and our job

was to slice and dice it, the net asset value of what we describe is what would be today's market value. And I'm guessing we would get a very pretty penny for Nelnet Business Services and the student loan book and for the different pieces of the pie and that's why there's a difference between kind of the stated accounting book value which is a very conservative estimate and the net asset value but the most important part of the now net story is that all of these numbers have been growing for like 17 years through some some some pretty hairy times you know and this is through the financial crisis um and so and through covid uh so this is a

management team that knows how to allocate capital that knows how to protect investors capital and frankly is some of the best capital allocators uh that i've come across how did you go about valuing now that did you do like some of the parts or yeah i've been it's the best way to do it it's just kind of some of the parts and try to make an assumption of what the different pieces are. And I have a report that I wrote in 2020 that is a nice framework for at least how I'm thinking about things in breaking those pieces apart. But you could also use book value as a way of like, hey, what should this trade at? I would argue that it's maybe not the right way to value a company with a bunch of technology either businesses um or divisions i don't know of many

and that's one of the most fascinating things is like we're talking about like what 1.1 times book value for what is essentially a technology company um and that's part of the opportunity would you would you rather see them take like the iac approach of spinning off the businesses or do you like kind of this approach of just tacking on more and more businesses? You know what I'm not going to do? I am not going to tell Manitou what to do. I have not amassed a record of compounding value for 17% for 17 years and navigated a company and assets and investments the size they had through the great financial crisis through COVID. That's one of the things is that management owns a big stake in the company. I

want to say they own like 40%. I'm very happy with how they're navigating things and I would encourage people to read their shareholder letters, especially the most recent one from the annual letter. You will see the chairman, Mike Dunlap, adds some very choice words for the speculative nature of the market. And you have a very conservative management team, but they're not too conservative. They're happy to move quickly and be aggressive when the risk reward is in their favor. And you see that over and over again, that they're ready to press the pedal when they see an opportunity, whether it's in their own stock or another investment. Yeah. The annual letter was fantastic. And I had a question, you said you didn't want to

tell management what to do. So I'm going to frame this a little differently, this question we had here. All of the things that they invested in or are investing in right now, I think they outweigh it in the annual letter, which is kind of nice to have a table. And it was either, I think it was like 700 million or maybe a billion dollars invested last year, dividends, buybacks, solar investments, venture investments, the business services, a few other things. What gets you most excited about where they're investing right now is it the bank solar stuff venture investments or just everything well the thing i wrote the most recently about was huddle because i could see that if they were to go public uh this is a company that they're you know

known that i could see especially with the monetization of student athletes and that collegiate athletes can now get paid um well you know while they have like i want to it's like 97 or 98 percent of all high school football and they have like 80 percent of every you know high school soccer team in terms of market share you think about the number of sports that are out there from wrestling uh track and field i mean you just name it and are those being recorded analyzed uh chopped streamed um sliced and diced for highlights for social media um and you just suddenly realize there is this massive opportunity for huddle to dive right in it and they're the principal way to play the monetization of student athletes which will go down from

college to high school down even further because if your goal is to get into a college team and to get paid now that you can get paid you don't even have to be a professional um you know what tiktok has shown us and instagram is that what happens when you incentivize you know uh young people uh to be creative well it's hard to be creative without video these days or images etc and that's right into huddles um hands and they have uh offerings right now where you know coaches and teams can get cameras for free and they just sign up for a subscription and where you just set it up you don't even need a person and their huddle now makes the cameras to automatically track the action to automatically stream it, to make it so it's, you know, basically anyone can do it.

And I just think that there are some massive, massive trends for huddle. And my Super Bowl case is that now that's 20% stake in huddle could be worth more than what now that trades for right now. What do you think would have to happen for the market to kind of recognize? I imagine most people don't even know that it's there. So I'm curious, what would have to happen when it had to be like a huddle IPO for people? It could be an IPO. It could be a next round of fundraising where they had one. I want to say it was last year where they suddenly had to increase their book value by like three or four dollars a share, which at the time was pretty big. It was in the 50s or 60s just from the increase in value from huddle and and and so you know uh they're being

very coy they're very very quiet with what that's actually worth but i can tell you is that bain partners and excel i think it's excel uh ventures very prominent uh venture firms are invested in it. And I seriously doubt they're just going to sit on it forever. And so whether that either IPOs or gets sold to some company, I mean, you could see someone like Nike buying them or someone else. There's a lot of different options for how that could be realized. And then one day, it'll just be like, oh, wow. That's much larger. And this is in the Nelnet kind of spirit of things. For the longest time, people wondered, why are you investing in a fiber network? What do you know about fiber network? And Nelnet was just taking losses. Because the

way you build out a network is you got to spend lots of capex and you take costs up front. This is classic Melnet style. And then all of a sudden, one day, they announced, hey, a private equity firm is buying half our stake for every dollar we ever put into it and more. And we're going to retain 45% equity. And then all of a sudden, you're like, whoa, that's a great return. And that's just like a great example of what Melnet's doing. And I think they're repeating the same thing in renewable energy. So the faster they grow in renewable energy, they're taking earnings hits and charges up front because, again, they don't care about the quarterly earnings. They don't care. You know, there's no analysts following the stock. There's no you know, and so they're looking at the long stream value. They're seeing how they can compound and keep growing and they see an opportunity and they're growing. And when they press the gas, when Nelnet presses the gas on something, you can be pretty certain that those returns are very attractive on a risk reward basis. Yeah, I haven't seen, I forget what the number is, but it's a lot bigger than you would expect how much they've invested in solar or whatever.

It's renewables, I guess, not just solar, but in renewables. I think it might be, it's in the hundreds of millions, right? Yeah, well, they just announced a deal. This is the craziest thing. I never thought I'd see some kind of crypto announcement with Nelnet. But Ripple basically announced a deal where they're partnering with Nelnet to do a $44 million renewable energy deal. And so they're growing, and they're going to produce a lot of value for shareholders. And again, it comes out and I throw out these catchphrases like payments, which is super sexy, social media and video and huddle with the market share that they have, super fast-growing unicorn of a startup. And I talked to you about fast-growing fiber optics, and you talk about renewable energy, and then you're like, wait, why does this trade slightly higher than book value? right it doesn't make any sense i was i was a little thrown thrown off when i saw ripple and i was like you weren't alone you were not alone i got a bit scared i got a bit scared i one one thing on a huddle this is just quick and you you may not have any information on this have you ever

seen any numbers about revenue or anything come out for them because i know they're kind of i've i've they're super secretive uh i've only heard whispers i'm not going to uh i'm not i'm not i'm not going to share because i have no verification of what i what i've heard right yeah there's nothing publicly that we found you know it's it seems like now that's management team has kind of rubbed off on huddles uh that's exactly right because the other thing is if you're huddle and you're grabbing these market this market share and you're acquiring companies left and right like you were mentioning the company that does the video before the what were you talking about the the ryan you know the name ryan it's w y scout so why scout yeah and so if you're huddle

they acquired that company right right and and remind me what sport or what are they focused on they're like they're basically the huddle model for professional soccer like around soccer yeah that's right and so it's an international so if you're huddle and you see this massive opportunity and you can go and acquire these different verticals and different companies and different international, are you going to be advertising to the world as to what you're doing? No, absolutely not. Not until you're really ready. And that's what they're doing. I think that's funny too, that they're both headquartered in Lincoln, Nebraska. So I think they really do have such a strong relationship. Well, also the Huddle CEO is on Nelnet's board.

Right. Yeah. Nelnet, I'm pretty sure Nelnet was one of the first investors. If anything I can criticize Nelnet about, it's that they should have invested more in Huddle. But it was a venture investment. And for Nelnet, they're very conservative. And as much as they believed in it, they were like, we're only going to put so much amount of money. I want to say that Nelnet also has dozens of other venture investments that I have no idea what they could be worth. Yeah. And for anyone that is interested, They, they have as much as they've ever invested in that stuff. And I do not have the numbers in front of me, but they outline it.

Just, they don't say how much stuff is worth or net asset value or whatever, but they have how, whatever they've invested over time into these venture investments. So you can check that out on their annual letter and they have, they provide tremendous to that point. They provide tremendous detail. Yeah. Yeah. And I don't want to get you too excited about huddle, but, uh, I also own crossover, which is the,

the basketball one for like, I think it's like the high school and college basketball. Yeah. I don't know. Yeah. I think so. Yeah. It's funny.

Like whenever I talk about now that with anybody, it just bores them. They kind of fallen asleep. And then you mentioned huddle and their head perks up. Cause it's like a household name that people actually know. That does that is that's exactly right. The other thing that I would say is anyone who sends their kid to a private K through 12 school.

That odds are they have known that because now that has 40% market share. Anyone who sends a kid to Catholic, I want to say their percentage of Catholic private schools, it might be 100% or it's in the 90s. Wow. So if you're paying for private education for your kid, odds are now that if you're sending your kid to a Catholic K-12 school, you're using Nelnet, you just don't know it. You can hedge your tuition by buying Nelnet shares. Yeah, that's exactly right. That's exactly right.

All right. I think we've got to hit a quick ad break, but we've got more questions in the back half. This episode is brought to you by La Quinta by Wyndham. Here you are miles from home and ready to start your vacation. Good thing you're staying at La Quinta by Wyndham. They have free high-speed Wi-Fi to stream all your favorite movies. And in the morning, get fresh waffles with their free bright side breakfast. Or squeeze in a workout at their fitness center. Either way, you're ready to conquer the day.

Tonight, La Quinta. Tomorrow, you triumph. Book your stay at LQ.com. Okay, welcome back, Yen. and we've kind of already touched on this, but I wanted to talk about management and capital allocation. So what are your thoughts on, I guess, Dunlap and the other, I'm blanking on the CEO's name generally, and then what would happen, how would it impact your thesis if Michael Dunlap left? I have a lot of respect for Michael Dunlap, but I think when I've communicated with him,

he has been very fierce to say that the entire management team is very, very strong. And I believe what I believe him. I would be more worried if you suddenly saw not that him leaving, but him, for some reason, you started seeing like a lot of insider selling or something from him. And that would communicate to me that something had changed for, And I think that the value they have in their assets is so undervalued right now, based on the way that I've analyzed the company. But, you know, one day he'll leave.

And that's part of the Nelnet story is I actually think they have a pretty amazing management team. And Mike Dunlap has kind of led the way on that. But I don't think that he's necessarily critical to the growth of Nelnet from here. Okay. And, you know, as an investor, you're looking at this company, it's a unique situation. You're not just looking at whatever a simple income statement and saying, this is what this company is valued at. What specific metrics do you look at to evaluate whether Nelnet's business is executing well? Because it's kind of hard, you know, you're just looking at value or whatever it is.

Yeah, that's a great question. But I think that's part of the opportunity is that if Nelnet was a simple story to analyze, or that you and I could plug it in to a screening tool, it would suddenly pop up. And Nelnet would not trade at the valuation that it trades at now. And I think that the weird financials, the giant student loan book, the servicing business kind of disguise these amazing businesses that Nelnet either runs or invests in. And so I think that that's the opportunity is that if you want to have a great investment, especially in a company with like a $3 billion market cap, it's not like this is a micro cap, that there has to be something on it of why it's either not in an index or people aren't following it. And so that's part of the opportunity. And, you know, an easy one to start out with is just what's book value per share and how's that doing every quarter. And then you can go into their filings and look how the different divisions are growing or not growing.

But admittedly, Nelnet is a difficult company to get your arms wrapped around. But therein lies the opportunity. And I think that's also why you want to look at the longer term track record of management. Why is it just sort of the, I guess, secrecy that you think the market sort of overlooks it? Or is it just like the, I mean, they really are non-promotional. Is there anything else that makes you think? Well, I think also because it's closely held, you know, it's not the most liquid stock. so you have to be comfortable with the fact that it it doesn't trade very much uh just looking

today i think it's traded it traded around 50 000 shares so you know that's another thing is that it's very very bold it looks very boring doesn't trade a lot of shares um management doesn't hold conference calls i think there's one analyst on it but he doesn't do a very good job And, you know, it's barely covering the stock. And so the company doesn't need money, doesn't have investment banks that are going to cover it because they're not going to, they don't need their business. And so I think, you know, the, all of those things wrapped up together with the fact that most people are investing based on what, you know, what have you done for me lately and showing the excitement and being promotional and, and also how does it screen? like you know it's a more difficult story to understand all those things come together but i'm i'm seeing things start to change and people starting to take notice i mean you guys are a great example of like once you start digging in and seeing the company you're like

wait a minute this is pretty good right i i almost feel too impatient for asking this like But do you think there is any upcoming sort of catalyst that could maybe drive more awareness or even drive, I guess, good financial performance for Nelnet? Well, what I would go ahead and say is the following, is we're at a point now where management has a history of buying back stock when the stock is below book value. And so briefly, I want to say it's like a month or two months ago, the former co-founder had passed away and his wife owned a bunch of shares and he had been selling and Nelnet came in and it was like, I don't know, like a 25 cents below book value, but they, they bought one back

1% of the company in one transaction, like two months ago at like 74. Um, and you know, I think they're going to end this year at like 78, $79 a book. I think next year they're going And book value is going to be somewhere close to like $90 a share. It's pretty dialed in outside of any increases in valuation for huddle or whatever. And so I would turn around and say, not that there's, there obviously could be catalysts in anything that they do. But if you just think about that upward pressure, that that book value is going to push on the a stock because if it falls from here, you know management's going to buy spec stock.

You know they're going to deploy capital. And if it really falls, you have some COVID or something else pop up, management's going to be incredibly aggressive, especially because the cash flows coming off of the student loan book are so overwhelming right now. So the company has the firepower to really... So one of the things that I just see is this kind of... I love stocks that have this tailwind, where you just know that it's going to be pushing an upward pressure. Then you can always have some kind of huddle announcement, where it either gets new financing, where they have to mark up the stock, or it goes public or gets acquired. You have some kind of update on their fiber networks you could see acceleration in their uh the nelnet business

services with their uh the payments company it could be growth and renewable energy or you could just see not much but the stock just goes up a little bit every day i'm not worried about the catalyst i'm worried about is management compounding value and growing their value are they being responsible with capital? And the answer is yes. It's funny. You think so much about the subsidiaries. You almost forget about like the billion and a half in cash that you get from the loans. Is that, I think it's, is it a billion and a half over the next five years? Is that the number that I forget the exact number, but it's something like $50 a share of like cash flows.

it's not it's over the next like seven eight years but the next three years is going to be the bulk of the money and they disclose this in the filings and i recommend everyone look at it but you can have some large dividend payout you can have some large tender i'm not really sure what they're going to do with all of that cash flow that's coming off um and so you could see a lot of interesting things over the next 12 to 18 months, again, depending on what opportunities they have. So kind of the best case scenario for us as shareholders is that despite this enormous cash that's coming down to the balance sheet, that they have found other places to put right because then you know that that money is going to be compounding at like 15 to 20

a year um but there are other ways that they you know again they've treated shareholders well they're fantastic capital allocators i will leave it to them and i am fairly confident at this price that i am uh that the market is not uh recognizing the value that's being built inside Nelnet. I think it's the easiest stock I've ever owned and maybe the most boring, but it's just, it's, they constantly make decisions that I would want to make if I were the management team. Last question, I guess, unless Brett has another one. No, it's probably a last question. If you were writing a pre-mortem for Nelnet today, why would the investment do poorly over the next five, 10 years? That's a really good question. I would say that there always is the

risk that the government gets involved or there is some kind of regulatory action on student loans that hasn't been disclosed there's always been a worry or a hang up with melnet that if the government cancels student loans or student loan debts that that would somehow hurt the company um but that's a misunderstanding because what the government actually would do is step in um to buy to basically pay the student loan uh debt and that's becoming less of an issue as the student loan business goes and decline. But the stock has been hit before because of the servicing rumors of that taking away.

I wrote about that and that all the competitors are leaving. And it's like Nelnet and one or two other companies that are left doing it. But I would say is, let's say I was wrong on Huddle that the payments business, I mean, you could have disappointments in business, right? Fiverr Network, that you could have all of these uh investments and they just stop growing um uh and and that and and that that

doesn't really accrue a lot of value you know and that you the stock really doesn't go anywhere i think that's maybe the big risk that i would think about is that we we the pain that now net business services doesn't really recover and continue on its growth post-COVID for some reason, that huddle isn't as exciting. I think you need multiple things to kind of fail, if I think about it. And that the stock really just doesn't go anywhere. Right. All right. I think that's all the questions we have. One more time for listeners, if they want to find your writing or anything like that, where could they do that? No, they can find me on Twitter. It's Aaron Value, A-A-R-O-N, and then value. And then they can find, I think it's the Mindset Value Substack blog, and they can also go to mindsetcapital.com.

Okay, perfect. Thank you. We want to remind our listeners that Brett and I are not financial advisors. So anything we say or discuss here on Chit Chat Money is not formal advice or recommendation. We are, however, general partners of Irish Capital. So clients may have positions in the securities discussed in this podcast. Thank you all for listening. We'll see you next time. Thank you.