well thats how rhyming slang tends to work, e.g. you would hear someone say "there was a barney" meaning there was a fight (that's Barney Rubble = trouble); or to "have a butcher's" meaning to have a look at something (Butcher's hook = look). Using the first part of the word or phrase is part of what makes it an in-group marker; those who know will understand, hence calling someone a seppo is just combining the cockney rhyming slang the ANZACs came across during the war with an Australian stylism. i would normally take that as friendly banter rather than derogatory.