APM Human Services (APM) provides health and human services across multiple geographies and programs. It has 1400 sites spanning 11 countries including – Australia, United Kingdom, Canada, United States of America, New Zealand, Germany, Switzerland, Sweden, Spain, Singapore, and South Korea. Following the release of APM’s FY23 result, we maintain our $2.90 fair value estimate and leave our forecasts broadly unchanged. FY23 underlying net profit after tax before amortisation, or NPATA, grew 7% to $178 million, in line with our forecast. It reflects a 43% increase in revenue to $1.9 billion, mostly due to acquisitions, partially offset by the NPATA margin falling to 9.4% from 12.5% in the previous corresponding period. The decrease in margin primarily reflects increased interest and taxation costs and a change in mix following growth in the North America market that largely operates on lower-margin cost-plus and cost-reimbursement contracting models.
However, shares appear oversold. APM has a strong track record of achieving superior service levels across contracts, allowing it to build on its significant market share. Longer-term, while APM’s average revenue per person, given fewer outcome fees, would likely decrease and weigh on margins in a high unemployment environment, the business has natural hedges. Higher unemployment will increase caseload and APM’s service fees. In addition, customers in a high unemployment environment typically have higher employability on average and don’t require as much assistance. We forecast five-year revenue to grow at an annualised rate of 9% as recent acquisitions contribute and the company services new contracts. We also assume a slight margin expansion, particularly as APM’s Workforce Australia contract, which it mobilised in FY23, matures, and it seeks to grow higher-margin outcome fees.