Mr Mkt wasn't overly enamored by the result and SP weakened...

Mr Mkt wasn't overly enamored by the result and SP weakened 1.7%. But 'Under the Radar' have RXP as a 'spec buy'. Part of their report 10/08/17 below. UTR compares RXP with peers and speculates re possibility of a TO. Also like analyst's final line: 'Technology has never been so important to profits.'

MORE DEALS AND DIVIDENDS IN THE WORKS.
The purchase of the Sydney based digital agency The Works adds about 10% to the company’s revenue base in the current year and increases its workforce by 61 to around 840. The deal is consistent with RXP’s strategy of expanding in both NSW and in the $70 billion digital sector. Pre-acquisition, RXP had $16.4m of debt but net cash of $2.2m. We expect RXP to pay a final dividend of at least 2c at its August 16 results, taking the fullyear payout to at least 4c a share. With The Works purchase expected to boost current-year earnings per share by 10%, RXP should remain in a strong position to pay healthy dividends. The acquisition looks to be a sound one. RXP should be seen as an eventual takeover target given three of its listed peers have been taken over in the last two years.

IS RXP 50% UNDERVALUED?
In June this year ASG Group (ASZ) offered to buy SMS Management & Technology (SMX) for $120m in a friendly deal, outbidding initial suitor DWS. ASG itself was taken over by Japan’s Nomura Research for $360m late last year. In late 2015 UXC Services was taken over by Computer Sciences Corp of the US for $415m.

These deals were struck on an average multiple (enterprise value to EBITDA) of around 11 times, while on forecast 2017-18 earnings RXP currently trades on a multiple of 5.5 times, a 50% discount. The prospect of a takeover aside, RXP’s valuation still compares favourably to that of its remaining listed peers: DWS (DWS), Data#3 (DTL), Citadel Group (CGL), Empired (EPD) and Melbourne IT (MLB).

IT SPEND IS CLIMBING.
While Melbourne IT is perceived as RXP’s closest competitor, it is more likely to compete with global giants such as Accenture, Deloitte and PWC. As with its rivals, RXP needs companies to be in an expansive mood because IT spend tends to be discretionary. The trend is that businesses are not only increasing their IT spend, but are outsourcing their IT requirements in order to keep up. Technology has never been so important to profits. Disclosure: the author (Hemming) owns RXP shares.