Big Win For APM Human Services

Australia | Mar 31 2022

This story features APM HUMAN SERVICES INTERNATIONAL LIMITED. For more info SHARE ANALYSIS: APM

[This story was published earlier today while containing a few inaccuracies, such as mixing market share with footprint, so we re-publish it in amended format].

Job placement company APM Human Services International has won new government contracts that could increase its foot print in Australia by 50%.

-APM Human Services was at risk of losing market share to the new government platform
-Company has been more than compensated with new contracts
-Has an opportunity to pick up further share from underperfomers

By Greg Peel

The share price of APM Human Services International ((APM)) has run up 15% in a week, and last Monday the company received the news it was hoping to hear.

APM offers employment services, such as training and new qualification, job search assistance, interview preparation, workplace modification, specialised support for people with mental health conditions, counselling, and ongoing support services in eleven countries, including Australia, Sweden, Canada, the UK, and the US. The company is looking at further opportunities in the US.

Since the beginning of the pandemic, the Australian government has shifted from JobKeeper/Seeker support to a “jobactive” approach under a New Employment Services Model which will transition again after July 1, to just be a Workforce Australia service.

Yes all very confusing but suffice to say the government has been retaining the services of the likes of APM in the process.

To make it even more confusing, the government has divided job seekers into three streams – ‘A’ being easiest to place and ‘C’ being hardest to place – and has moved Stream A onto its own online platform, Digital First Services, leaving Stream B and C (and a little overlap from 'A') to APM and its competitors.

Up until that point, APM controlled 10% market share. Goldman Sachs calculated that having lost (most of) Stream A, APM would need to increase its market share of B and C to 13% to maintain its earnings level.

Re-Tendering

As part of the transition, the government re-tendered for services going forward and APM has found itself a big winner, gaining a 50% increase in its number of Employment Region contracts to 27. APM has also been appointed to the sub-panel of all 51 regions, which provides the opportunity to pick up further regions if competitors underperform.

Goldman Sachs estimates the new contracts take APM to 15% market share, slightly above where it needed to be, and number one position from a prior number two, but further upside is on offer if the company pursues bolt-on acquisitions via its position on all 51 sub-panels.

Goldman Sachs has a Buy rating and $4.00 target price (last trade $3.23).

Credit Suisse has an Outperform rating and $4.20 target. The broker forecasts FY22 profit 6% above prior guidance, but admits this is conservative given a strong jobs market and easing covid restrictions. If Australia grows 3% in the second half from the first, and other regions perform in line with prospectus, that could be 14% above guidance.

UBS has taken a similar stance, having already incorporated a continuation of jobactive earnings in its model and hence not changing its forecasts at this stage. But the broker highlight upside risk if first half momentum continues into the second half.

UBS has a Buy rating and has increased its target to $3.50 from $3.30.

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