I believed APM has appointed UBS as their advisor since it had been the subject of half a dozen inquiries from would-be buyers, Refer to copyright link Feb 13. 2024...
Let's see
Our fair value estimate for APM is AUD 2.40 per share. This implies a forward fiscal year P/E ratio of 32 and an enterprise value/EBITDA ratio of 10.We forecast an organic group revenue CAGR of 4%, which is largely driven by our revenue assumptions for Australia and New Zealand, or ANZ, which contributed 40% of fiscal 2023 group revenue. We forecast segment organic revenue to grow at 5%, resulting in 37% of group revenue stemming from ANZ by fiscal 2028. In the region, we assume APM’s 13% market share of Workforce Australia contracts remains fairly stable, with the next retender in 2029. For DES, we forecast APM to gain 3 percentage points in market share at the next expected retender in June 2025 to 21% of the caseload from 19% in fiscal 2023. While we factor in 2% average increases in revenue per customer as the Australian government helps cover inflationary cost pressures, we anticipate Workforce Australia and DES caseloads to continue declining in the near term from pandemic-induced highs in fiscal 2021.On the profitability front, we expect EBITDA margin to average 16% during the next five years down from the historical three-year average of 21% to fiscal 2023. Although we expect APM to benefit slightly from scale and leverage travel, occupancy, and administration costs,
we think APM's acquisition of Equus is margin-dilutive overall. Our estimates deliver a forecast EPS CAGR of 7% from fiscal 2027.
Capital Allocation | by Shane Ponraj Updated Jan 18, 2024
We assign APM a Standard Morningstar Capital Allocation Rating based on our assessment of balance sheet risk, investment efficacy, and shareholder distribution.
APM’s balance sheet is in sound condition. Financial risk is low given a high proportion of variable costs, solid cash conversion and lengthy government contracts. We forecast net debt/EBITDA to remain under 1.0 over our explicit 10-year forecast period while also funding a 50% dividend payout ratio.
Investment efficacy is fair. We view APM’s investment and acquisition strategy as positive in strengthening its scale and associated cost advantages. We forecast the firm to generate economic profits over our explicit 10-year forecast period due to lower capital intensity rather than a moat. However, we assume future acquisitions will be value-neutral and note both the deal and execution risk of integrating many businesses into the APM network.
We view shareholder distributions as appropriate. Management has stated a target dividend payout range of 40% to 60% of net profit after tax before amortization, allowing enough capacity for the company to fund its growth, both organically and through acquisitions.
