All The Bad News Possible

Nuix is a software company that essentially turns a large mess of digital data into practical, useful insights. For example, imagine you were trying to catch a drug syndicate – you wouldn’t get very far by just searching social media for relevant words. What Nuix does is analyse all that data – location, messages, people – and turns it into things like ‘person A and person B meet frequently at location X’. This has huge use cases in things like; digital evidence for law enforcement, and financial crime. Nuix has had two massive real world hits in both – the Panama Papers which opened up a world of high-wealth individuals committing huge financial crimes, and Offshore Leaks which was the biggest international tax fraud bust of all time. As the world becomes more digital, the use case for Nuix’s software becomes clear. No human can go through the huge amounts of data that’s behind these crimes, let alone connect all the dots within it. Nuix is a leader in this legal-tech space, which is also for big companies wanting to keep out of legal trouble – Amazon, CBA, Unilever, HSBC, and Amex. The stock hit $12 last Dec, so how has it ended up at just $2.50? First, they downgraded the sales guidance from their prospectus twice just 4mo after going public. Then their founder had a questionable options package that was apparently signed 15yrs ago which entitled him to $80mil in shares which he bought for $3k. That same founder was also jailed for tax evasion and money laundering in ‘18, returning to the board after his release. Then the CEO and CFO left ‘on mutual terms’. Funny how a law enforcement software company has so much corruption within it. So today Nuix is on a sales multiple of about 4x, they just reported their year results which showed mediocre growth of 4%. Current FCF margins of just 5% ain’t great, but with gross margins of 89%, it’s likely they’ll hit FCF margins of 30% once mature. So currently they’ve got a theoretical FCF multiple of 14x which is incredibly cheap. The good news is they increased their customer count by 58%. In all, it’s a software company on a ridiculously cheap valuation amongst a sea of fear. Worth a look.