Nelnet (NYSE: NNI) announced a large financial win in an 8-K filing on Monday afternoon without issuing a press release. In typical Nelnet non-promotional style, the company announced that one of their investments, Allo, is doing a refinancing and as part of that refinancing, Nelnet will shortly receive $410 million in cash and recognize a $175 million gain.
Nelnet purchased Allo at the end of 2015 and including the acquisition, loans and capex, Nelnet invested a total of $490 million in Allo in multiple phases over the past 10 years. In late 2020, Nelnet sold half of its Allo stake to private equity firm SDC for $197 million and preferred equity of $160 million. And on Monday, Nelnet announced that they sold their remaining preferred equity and some of their equity for an additional $410 million, while still maintaining 26% equity ownership of Allo, which I estimate is worth $253 million. This does not include interest that Nelnet has earned from their preferred, either.
And in classic Nelnet style, the company indicated in the 8-K filing that they carry the 26% ownership stake at zero on the balance sheet.
This $410 million cash windfall joins the $250 million in cash that will roll off its student loan book that is in wind down and the $240 million or so of estimated earnings this year. That means that at the exact moment the financial world is in turmoil and that liquidity is getting tight, Nelnet’s cash coffers will increase by over $900 million. For context, the entire market cap of Nelnet is slightly less than $4 billion.
Nelnet, just like its Omaha “grandpa” Berkshire, is built on solid, non-promotional midwestern values. The company has compounded its book value by almost 16% a year since 2004 and is building a budding investment behemoth focused on education, payment and technology investments, like its hugely valuable 20% stake in HUDL. The company’s book value should exceed $100 per share at the end of Q2, but its intrinsic value is closer to $200 per share.
I think what Nelnet is doing is really fascinating and that the company is wildly undervalued and that’s why a small group of investors plan to join me in attending Nelnet’s annual meeting this year and plan to meet with Chairman Mike Dunlap and CEO Jeff Noordhoek.
We would like to learn how Nelnet plans to navigate the current environment and what the company plans to do with its growing cash hoard.
We think it may not be long before more and more investors start heading south from Omaha to check out another Nebraska investment company based in Lincoln. Who knows, maybe one day, Nelnet’s annual meetings will be just as well attended as Berkshire’s currently are. Berkshire investors might do well to look south to Lincoln.
P.S. I highly recommend you read Nelnet’s annual letter, which can be found here: Nelnet Letter. It’s a great way to be introduced to the company, its strategy and management’s way of thinking.