APM Human Services APM provides employment related services on behalf of the Australian government. It focuses on people with disabilities or illnesses finding suitable work in 11 countries, with its Australian services including those under the National Disability Insurance Scheme (NDIS).

On Monday, US Private Equity firm Madison Dearborn Partners, APM’s current top shareholder, offered $1.40 per share to purchase the 71% of the firm that is does not currently own. The offer is at a 21% premium to the last closing price of $1.15 at last close.
It also received a takeover bid by CVC Asia last week for $2 per share, which CVC withdrew shortly after. This was CVC’s second offer, 30% higher than its initial bid of $1.60 seven weeks ago.

The bid has been called ‘disappointing’ by the company, but they have noted that they are considering the offer. The shares have been on a trading halt since 27 March and only resumed trading on the 8th of April, sinking 31% on that day after disappointing forecasts from the company.

APM Human Services International Pty APM ★ ★ ★ ★

  • Fair Value: $2 (42% discount at 8 April 2024)
  • Moat: None
  • Sector: Industrials
  • Industry: Staffing and employment services
  • Uncertainty rating: High
Price vs fair value for APM

Morningstar’s Fair Value estimate for APM is $2. On Monday, the company released fiscal 2024 guidance of underlying Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) of $280-290 million falling 7% compared to H1 fiscal 2024, and underlying Net Profit after Tax before Amortisation (NPATA) of $95-105 million, falling 18% compared to H1 fiscal 2024. This contrasts with management previously guiding to a stronger second half for both earnings metrics in February and our prior expectations for second-half fiscal 2024 underlying EBITDA and underlying NPATA to increase 11% and 19% respectively. This earnings volatility is reflected in our unchanged High Uncertainty Rating.

Nonetheless, our long-term thesis remains unchanged, and shares appear to be oversold.
APM Human Services International’s strategy revolves around maintaining its superior service levels to renew existing contracts and gain market share at key government retenders. Over a government contract, which is typically longer than five years, slight market share gains and losses can arise if certain employment service areas, or ESAs, experience faster growth or from reallocation due to contract underperformances.

A core competency APM needs to maintain is navigating and executing bid processes within the government sector. This involves responding to governments’ requests for proposals, or RFPs, where APM would estimate cost structures and submit proposals with respect to both price and client outcomes. A common focus of governments is a strong track record of contract performance, capability, and the ability to deliver positive outcomes, but price is also a consideration.

Employment services contributed more than 75% of fiscal 2022 revenue but a key strategy of APM is to grow into the National Disability Insurance Scheme, or NDIS, sector.

We do not award APM a moat. A moat is how our analysts indicate whether they think a company has an endurable competitive advantage that can help maintain and grow earnings. While we think superior service levels associated with APM’s brand have helped the firm achieve first or second market share positions in its key geographies, we think processes can be replicated by competitors and turnover of skilled and experienced staff is inevitable. We also think APM has traces of cost advantage provided by its scale, which have helped to win government contracts, but given most costs are of labour, we think the durability of this advantage is limited.