ADP Delivers Robust FY 2022 Result as Labor Markets Prove Resilient Despite Economic Headwinds

Wide-moat ADP reported a solid fiscal 2022 result that was in line with our expectations. Full-year group revenue increased 10% year on year supported by resilient retention, a recovery in labor markets, and continued demand for solutions to attract, manage, and retain employees amid tight labor markets. Increased operating leverage and higher interest income from a larger client base supported a 90-basis-point increase in adjusted operating margin, to 23.5%. While the result met our expectations, we have adjusted our medium-term economic forecasts to factor in a near-term slowdown in growth before a recovery in fiscal 2024. However, the minor dilutive impact of this adjustment is offset by time value of money, and we maintain our $228 fair value estimate. At current prices, ADP is trading in line with our valuation.