APM Human Services: Disappointing Trading Update but Shares Remain Undervalued

We decrease our fair value estimate for no-moat APM Human Services by 11% to AUD 2.40. We significantly cut our near-term EBIT forecasts by 29% on average over the next two years given current headwinds. We think labor shortages are likely to persist near-term in APM Human Services' health segment. The firm's recent contract wins and acquisitions in North America are likely not as profitable relative to our prior expectations, and abnormally low levels of unemployment are likely to result in depressed client flows and placement fees near term. However, our long-term estimates are relatively unchanged and shares appear oversold. While lower unemployment is currently weighing on profitability, cyclicality is inherent in APM’s business. We have increased our Uncertainty Rating to High from Medium to account for this cyclicality.