It certainly was a great day for shareholders of RXP Services Ltd (ASX: RXP). The shares of this technology consulting services company have surged higher by 7% to 77 cents today after it announced strong full year results.
Last year management provided FY 2016 sales guidance of $105 million. That in itself would have undoubtedly been a great result and a big increase from the $78.9 million sales it posted in FY 2015. But this morning the company far exceeded its own expectations and delivered sales growth of 61% to $127.1 million.
Even better was the fact that improvements in its operating performance meant underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) increased at an even higher rate of 71%. This meant full year underlying EBITDA came in at $18.2 million, with earnings per share a strong 7.6 cents.
The company has made a series of successful acquisitions during the year which has of course been a boost to sales. But according to its earnings presentation organic growth accounted for 29% of sales growth this year, which is impressive in my opinion.
With strong demand for its services persisting, management is confident that sales will grow by at least 10% to 15% in both FY 2017 and FY 2018. As well as this, it believes its strong balance sheet leaves it well placed to make strategic acquisitions that enable it to grow inorganically and build capabilities in areas of high demand.
At the current price its shares are trading at just over 10x earnings and providing a fully franked 3.9% dividend. I believe this makes RXP Services an attractive investment and a better option for investors than its rivals SMS Management & Technology Limited (ASX: SMX) and DWS Ltd (ASX: DWS).
It is worth remembering though that the industry it operates in is very competitive and has low barriers of entry. But even when taking that into account I feel quite sure that this could be a bargain buy.
