CRITERION: Opportunity knocks for some amid crackdown on NDIS fraud

For the only ASX-listed, pure-play provider of National Disability Insurance Scheme (NDIS) services, the Federal Government’s crackdown on the burgeoning cost of the program presents opportunities rather than threats.

Freedom Care Group Holdings (ASX:FCG) CEO and co-founder Jama Sabsabi says the intensifying blowtorch on fraud and excessive provider charges is likely to thin the ranks of the 19,000 NDIS providers – with many good businesses on the sales block.

Specialising in complex cases involving the more expensive packages, Freedom Care is poised to open the cheque book to acquire sound providers facing additional compliance costs.

“The NDIS is casting a big net to catch the fraudsters – and rightfully so,” Sabsabi says. “The sooner they get them, the better it will be for the ethical providers.”

In the meantime, “everyone is under the blowtorch”. For instance, scheme auditors might demand case notes, or the particulars of a shift worker.

“That will add to the cost of good providers until the sector gets cleaned up,” Sabsabi says.

“But when that is over it will be a good place to operate because you won’t have the cowboys to compete with – or be labelled as such.”

Based in western Sydney but with a presence elsewhere, Freedom Care gleans 55 per cent of its revenue from providing accommodation and staffing for participants requiring around-the-clock support.

20 per cent of revenue derives from lower-skilled home support and community participation jobs, with a further 20 per cent from allied health services such as occupation therapy, speech pathology and psychotherapy.

The company’s acquisitive sweet spot is providers with $5-10 million of revenue that might be struggling to handle growth.

“They are great targets for us because we can value-add on to their systems and their organisational structure and reporting network,” Sabsabi says.

Freedom Care listed in November last year, having raised $3.2 million at 20 cents apiece.

The company reported June quarter receipts of $9.2 million and positive cash flow of $203,000, with full-year receipts of $38.5 million.

“Unlike most microcaps we are positive and profitable,” Sabsabi notes. “We have $4 million in the bank so could pay for first deal in cash.”

Other ASX companies are dabbling in the NDIS plan funding management space by way of diversification strategies.

In 2022 NIB Holdings (ASX:NHF) acquired an NDIS plan manager, Maple Group, and after buying several more has formed an arm called NIB Thrive.

The health insurer’s full-year results this week showed NIB Thrive fee income rose 251 per cent to $51.3 million, with an underlying profit of $15.3 million, up 392 per cent.

NIB reports that while the overall growth of NDIS participants slowed during the year – to 8.3 per cent growth compared with 14.2 per cent previously – the proportion of them using a plan manager grew to 63.3 per cent from 59.9 per cent previously.

While NIB Thrive accounted for less than 5 per cent of NIB’s operating profit, it is an important diversification at a time of ratcheting health insurance claims costs.

More known for its salary packaging services McMillan Shakespeare Group (ASX:MMS) has a similar business called Plan Partners. This week’s results show the division chipped in $8.5 million of underlying profit, up 6.4 per cent and 8 per cent of the group’s total earnings.

Even before the government’s NDIS crackdown, the scheme wasn’t a honey pot for everyone.

Managed investments platform DomaCom (ASX:DCL) – until recently chaired by former Liberal opposition leader John Hewson – is facing the fallout from promoting a failed third-party NDIS housing scheme.

The more global disability employment provider APM Human Services (ASX:APM) meanwhile is poised to exit the bourse, having agreed to a $1.3 billion takeover offer from shareholder Madison Dearborn Capital.

APM was valued at $3.2 billion when it listed in November 2021.

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