Buying RXP Services Ltd (ASX:RXP)

I purchased shares in RXP Services Ltd (ASX:RXP) recently. I have previously owned stock in the IT services company which has a history of disappointing investors. The business listed in 2011, emerging as a hotchpotch of small previously privately owned consultancies spread across Australia each with their own technology specialism. As is typical with ill-conceived acquisitive business models, RXP has suffered from a stream of setbacks and a deservedly lowly market valuation. The latest calamity is the "commoditisation" of a large chunk of its revenue which has reduced profit margins and would have shrunk sales were it not for the purchase of The Works, a digital marketing agency, in 2017.

I think RXP is an improved organisation. The addition of The Works has extended RXP's repertoire of services and this is helping it to win new clients and retain existing ones. The business has been restructured into geographic divisions making it easier to manage. "Commoditised" revenue now accounts for just 20% of total turnover and the remainder is derived from increasingly in demand "digital" services. Overall, it seems to me that RXP is finally becoming a properly integrated company rather than a collection of disparate parts.

As with much of RXP's investor communication it is unclear exactly what "commoditised" and "digital" revenue represents, but I guess that is the nature of marketing consultants. The risk is that what is described as "digital" today will also become commoditised. However, even if this is yet another false beginning, the stock is so pessimistically valued that I think my capital is well protected.