Ann: RXP Results Announcement, page-40

After quickly tripling my position at 95.5 cents, the price dropped!
After quickly comparing its peer, I come to realize why RXP is not as hot as ASZ...

ASZ is basically not acquisition-driven with its goodwill sitting stable @ around $71 million since FY2014 and its management even launched a small scale share buyback in FY16. The last time it did acquisition was back in FY2013 when it paid out $16.8 m, finishing three leftover acquisition agreements signed in FY2010..while RXP has been constantly using acquisition as its growth fuel since listed in FY12 (Nov 2011) and creates large goodwill from zero to over $87 million. It seems dangerous...

I intend to compare the acquisition results but checking their revenues and NPATs first will do us no harm:

	Column 1	Column 2	Column 3	Column 4	Column 5	Column 6	Column 7
0	ASZ	2016	2015	2014	2013	2012	2011
1	Revenue	188	164	160	153	150	153.5
2	NPAT	12	9.5	8.9	-27	11.5	15.7
3
4	RXP
5	Revenue	127	79.2	56.1	30.2	12.1
6	NPAT	12	7.4	6.5	3.5	0.4	-0.3

(Accounting rules about deferred payments to vendor change a bit during these years. I didn't adjust ASZ's figure as it seems since FY13 Annual report, year on year figures are all comparable. I adjust RXP's FY16 NPAT to a comparable basis by adding back the deferred payments to vendor to the profit before tax.)

Don't know how you guys think about the above figures by face value but I think RXP's MD Mr. Fielding has done a pretty good job.

Since listed till the end of FY16, RXP spent $90 m in business acquisition (including cash paid $57 m and specific stock issued $33 m).  

During the 5 years, RXP's earning increases from negative to $12 m. Don't know how much of the $12 m is ORGANICALLY generated but even add the total capex in PPE of all these years $2.22 m on top of the $90 m, the incremental return on the spending is (12-(-0.3))/(90+2.22)=13% which would be reduced to 11.8% if the deferred payment to vendor is considered as an expense.

I understand there's a time frame matching issue here because ASZ's purchase agreements were signed in late FY2010 and FY2011 but roughly saying, even one tries to use FY12 as a base year instead of FY11 (where that year suffered from huge impairment write-down), the rate of return on the acquisition spending=(12-11.5)/16.8=3% which is far behind RXP.

If you take WesFarmers whose $19.5 billion purchase (including cash $4.2b and stock $15.3 b) of Coles in FY2008 was praised by many journalists as an example, up until FY2013 for 5 years, WES' incremental NPAT is about $1.5 billion and the rate of return is only =1.5/19.5=7.7%.

Of course Coles is a solid business with a vast operation network providing basic food and beverages to Australian people every day.  Comparing the two may looks unfair. But what I am trying to say is that considered RXP's headline and bottom line are both growing solidly with its most recent full year and half year operating cash flow 14 times and 8 times its finance costs paid respectively, it seems this acquisition strategy has yet come to a dangerous cliff edge.

I don't personally like management to keep asking for money to grow the company. However, considered that the trailing PE is very attractive @ ~10x and half year update sounds fair, Mr. Fielding owning 7.3% of the company has not yet dumped a single share since listed and no options and performance rights outstanding, I cannot find a reason to be impatient.

Let's hope Mr Fielding to slow down a bit and not to do any "transforming" deal to climb on the cliff soon.