APM Human Services Takes Market Share 

Small Caps | Dec 14 2022


Early investment sees APM Human Services outperform competitors as Workforce Australia gears up, while acquisition underpins future upside. 

-APM Human Services remains a a market leader with a strong outlook for the current year
-Transition to Workforce Australia should benefit, with early investment allowing the company to outperform
-Acquisitions underpin the company’s earnings outlook as recent purchases begin to meaningfully contribute

By Danielle Austin

Increasing recognition by global governments as to the need to to support vulnerable or disabled populations underpins a positive outlook for employment services and health and welfare provider APM Human Services ((APM)). APM Human Services has emerged as a market leader in the human services industry, currently operating across ten countries including Australia, the UK and Canada. 

The transition to the recently launched Workforce Australia program from Jobactive has potential to benefit APM over the life of the program. The initial transition to and ramp up of the Workforce Australia program disrupted the company’s first half, but benefits should emerge as the program is further established and expanded over the second half. 

APM deployed $6m in the first half of the year, with a similar amount spent in the second half of the previous year as the company prepared for the commencement of the Workforce Australia program. This preparation likely allowed APM to outperform competitors from the program launch. 

The company has successfully taken 25% of 15,500 clients required to transition to a new provider in the transition, and looks to increase its Workforce Australia operations over the year as personnel dedicated to the program increase.

Acquisitions key to earnings outlook, offshore offers upside potential 

Euroz Harleys, which recently initiated coverage on APM Human Services (Buy, target price $4.10), sees a strong outlook for the company over the remainder of the fiscal year. 

Underpinning this view is acquisitions made by the company in the last fiscal year which should contribute to results. Acquisitions of MyIntegra, Early Start Australia and Mobility will deliver full year contributions to the current fiscal year. 

Offshore expansion also offers upside potential for the company, which recently announced the acquisition of Equus. Goldman Sachs expects this purchase to contribute $430m a full year revenue to the company’s US operations. 

Goldman Sachs (Buy, target price $4.20) feels the market is currently under-appreciating the company’s ability to generate sustainable earnings growth, and forecasts the company can achieve a 17% compound annual growth rate through to FY25. Goldman Sachs feels the company is well positioned to sustain growth with acquisitions. 

The broker expects AMP to be a long-term beneficiary of the transition to Workforce Australia, and that the company will gain share. It anticipates the company will be advantaged by the increased focus on performance offered by Workforce Australia, with the program having greater emphasis on services for participants facing greater barriers while those with fewer barriers will predominantly be directed through a digital platform.  

Goldman Sachs expects APM’s Workforce Australia operations will have a stronger second half as the company reassigns available staff to the program, but does note some investment spend is to be expected as the company enters and leaves regions of differing scales. 

Within the FNArena broker database, Credit Suisse (Outperform, target price $4.00) anticipates a significant second half earnings weighting will emerge, and predicts the company will report net profits of $105m in the second half and $80m in the first. Estimating that APM ost four key regions in the Workforce Australia reshuffle, but gained thirteen new regions, Credit Suisse expects it will take more than six months for the company to gain traction in new areas, and for fee generation to reflect potential.

UBS’s (Buy, target price $3.75) latest report on APM largely focused on the company’s involvement in the UK Restart program, which has continued to ramp up over the last six months. On the back of lower unemployment rates than initially anticipated, the broker expects the program will help less participants than expected, but at a higher cost per candidate to the government. While the broker sees this as a minor drag on FY23 and FY24 results, it had already assumed a more modest peak than guided to. 

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