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Services Growth Benefits APM International

Small Caps | Dec 15 2021


A renewed focus on the provision of human services following the covid pandemic is likely to benefit APM International as the newcomer continues to prove value in its services.

-Recently listed APM International looks to benefit from sector conditions
-Strong performance should position the company to benefit from increased funding in government services with contract wins
-Australian Government funding for the NDIS and NESM offer key growth opportunity

By Danielle Austin

A growing aged care sector and increased focus on equitable disability services looks benefit to human services provider APM Human Services International ((APM)) as the company sets sights on big contract wins.

APM International is a provider of government-funded essential human services, largely focused on employment, disability and allied health and providing employment services for the disadvantaged or disabled sector. The company’s strategy is underpinned by a demonstrated long-term trend of governments outsourcing to service providers who prove value, and government procurement contracts provide a stable revenue base. The company currently operates in ten countries, including in Australia, the United Kingdom and Canada, and only listed publicly in November.

Growth in aged care and disability services driving outlook

Government contracts represent a steady revenue base for APM International, with global government expenditure on human services gradually increasing. With a current tender pipeline representing more than $2.5bn annually to company revenue, strong client results should position the company for contract wins, while the ramp-up of existing contracts should further drive growth.

The Australian government has budgeted for aged care funding to double by 2032 to support an ageing Australian population, particularly in the wake of the covid pandemic. Additionally, the $30bn per annum National Disability Insurance Scheme funding is also set to more than double in the same time period, offering potential for gain market share for service providers.

Within the opportunity pipeline is a tender for the New Employment Services Model, a reform to Australian employment services, which could see APM double its share in mainstream employment services programs if successful in its tender.

Further, given the current Royal Commission into the neglect and exploitation of people with a disability, analysts expect findings will place responsibility on corporate Australia to do more to employ disability groups and further opportunity to open up to human services providers like APM.

Credit Suisse, UBS and Goldman Sachs all recently initiated coverage on the company.

Credit Suisse is Outperform rated with a target price of $4.15, forecasting year-on-year profit after tax growth of 18% and 17% for FY23 and FY24, noting that exposure to the NDIS as it ramps up is currently APM’s key growth opportunity.

UBS is Buy rated with a target price of $3.30, and expects the company will deliver 27% year-on-year earnings growth. Further, the broker noted current pipeline opportunities could represent a $34-70m earnings benefit and expects the company can achieve a more than 10% compound annual growth rate through to FY25. Analysts at UBS attributed underperformance of APM International stocks since public listing to uncertainty around what the next iteration of Australia’s Disability Employment Scheme will look like.

Goldman Sachs is Buy rated with a target price of $3.60. The broker is forecasting a three-year earnings per share compound annual growth rate of 19% and revenue compound annual growth rates of 21% and 19% for FY22 and FY23.

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