Description

Tier Technologies (TIER - MC = $110MM)has 3 main focusses: (1) the
company has a child support collection business(they collect money from
deadbeat fathers) for 13 states. They have a 50% share of this market
(a division of Lockhead is the other competitor). This business is growing
at 20% for TIER as states outsource and the underlying business grows at 10%
per annum. The business is a solid growing annuity (60% rev/70% ebit);
(2) the company provides healthcare IT to healthacre companies.
This division should grow at 25% - 50% per annum see Catalyst #1 HIPAA
(10% rev/15% ebit); and (3) international opps in England and Australia
provide IT consulting and are not pertinent to the ongoing core business
(30% rev/15% ebit). The CEO J. Bildner has built the business from a $25
mm revenue base 4 years ago to $130 mm this year (25%+ internal growth the
remainder through acquisition). The company should earn 70 cents (9/01)
and 90 cents (9/02), respectively assuming no major client wins.
The company has $1 per share in net cash and DSO are
currently at 51 days

Catalyst

1. The IT healthcare business should grow at very high rates (potential
of $100 MM plus in business) because of the federally mandated HIPAA
(Healthcare Insurance and Portability Act) which requires all healthcare
organizations to comply with a standard for patient information and bill
submission. HIPAA compliance could equal Y2K expenditures and TIER
is well positioned to benefit.
2. The government business (mandated) is a terrific growing annuity.
3. Great balance sheet with good working capital controls - DSO
down over 10 days in last year to 51 days.
4. Trades at 10x earnings growing at 25%.