APM Human Services: Disappointing Offer Considering APM’s Outlook

We keep our AUD 2 fair value estimate for no-moat APM Human Services, which is now in line with our stand-alone assessment, previously AUD 2.40. The firm provided fiscal 2024 guidance of underlying EBITDA between AUD 280 million and AUD 290 million and underlying net profit after tax before amortization, or NPATA, between AUD 95 million and AUD 105 million. The midpoints imply second-half fiscal 2024 underlying EBITDA and underlying NPATA fell 7% and 18%, respectively, compared with first-half fiscal 2024. This contrasts with management previously guiding to a stronger second half for both earnings metrics on Feb. 28, 2024, and our prior expectations for second-half fiscal 2024 underlying EBITDA and underlying NPATA to increase 11% and 19%, respectively, compared with first-half fiscal 2024. We significantly cut our near-term EBIT forecasts by 18% on average over the next two years, given that lower unemployment likely affects profitability more than we expected. This earnings volatility is reflected in our unchanged High Uncertainty Rating.