Here's why the UXC Limited share price is headed higher

UXC Limited (ASX:UXC) has receiving a takeover offer worth $1.24 a share.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

What: The share price of information technology (IT) services company UXC Limited (ASX: UXC) is set to trade higher when it exits a trading halt after the company announced before the market opened on Wednesday morning that it had entered into a Scheme Implementation Deed with the US$9.6 billion Nasdaq-listed Computer Sciences Corporation (CSC).

So What: The acquisition offer has been struck at a price of $1.22 per share plus an additional 2 cent franked interim dividend. The offer marks a premium of around 8% to the $1.15 price at which the stock last traded before entering a trading halt on Monday morning.

Now What: The takeover offer for UXC is a reminder for investors that the IT services sector could be a happy hunting ground for potential investment opportunities.

A number of UXC's peers including SMS Management & Technology Limited (ASX: SMX) and DWS Ltd (ASX: DWS) have performed reasonably well in recent times however over the medium term of the past five years their share price performance remains well below that of the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) with falls of 55% and 17% respectively.

It begs the question of whether there could be further merger and acquisition (M&A) ahead for the IT services sector…

According to consensus forecasts, SMS and DWS are trading on forecast price-to-earnings (PE) ratios of roughly 13x and 12x respectively which compares favourably against the 15x that UXC is trading on. The relative valuation of both stocks could make them worth a closer look by inquisitive investors with the potential for a pick-up in M&A across the sector a handy bonus.

Motley Fool contributor Tim McArthur owns shares in UXC Ltd. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »