Realising shareholder value

As I type I am looking at an advertisement for oz contacts as a pop up in HC. In fact, after visiting the site the advertisement is appearing frequently on various web sites. The website seems pretty slick and the prices on contacts seem cheaper than other site I have compared (i.e. bupa et al). Also it seems amazon US does not sell the lenses just accesories - from my searching. So to me these are all good points for REF.

However, the "profit guidance" was not so good. The figure of 0.6-0.7m EBITDA is well below what most investors would have been expecting after the company suggested oz contacts would be EBITDA positive in the half. Certainly it seems the online contacts business is chewing more cash than expected. As alluded to above the advertising budget must have expanded significantly - which is probably a good thing.

Where does this leave shareholders? I have tried to think what the breakup value of the company might be:

Cash: Approx 7.4m and can be franked to about 10.5m (REF has the franking credits to cover the entire distribution). The excess franking credits, beyond that required for the 7.4m would have some value too. The current balance is around 6.3m. So theoretically about 20m of franked earnings could be paid out.

Online contacts business: Approx 1-3m (2m midpoint). Note the online contact business REF recently purchased for 750,000 is less valuable in my opinion than the in situ oz contacts business

1800 Reverse business: Approx 1-5m value (3m midpoint). Many posters has suggested this business has close to no value. I beg to differ on this after looking at some of the competitors the relative pricing is pretty close or the same and 1800 has a market leading position. Obviously with wi-fi pockets the exorbitant prices charged for this service have seen sharply declining revenues. Though I can still see the value of this service for many years to come, for various reasons people with prepaids and no credit will not always be able to go to an area with wi-fi. There may be other avenues to monetise this service as well. Certainly in my opinion a 3m price tag does not seem unreasonable and EBITDA in excess of 0.5m may be achieved for many years to come. Many investors seem to be extrapolating the recent falls in revenue and valuing the business near zero.

The company has 93.4m shares in the float, which gives a market cap of about 9.3m.

Total value of company:

Low: 7.4m + 1m + 1m = 9.4m
Mid: 9.0m + 2m + 3m = 14.0m
High: 10.5m +3m + 5m = 18.5m

I guess the real question is how management can realise shareholder value. Still all of the above figures are fairly conservative and it is possible that the assets could be sold and gains may be greater than given above. My worry is that acquisitions are made that don't work out. It certainly seems management is leaning towards online acquisitions which would be complementary to their current business. Though I have two hopes here: that management is careful and deliberate in acquisitions since they have their own wealth on the line and secondly that fund managers such as WAX/WAM also work with management to optimise value. Note WAX/WAM hold 9% of the float and with current liquidity the only way they could get out of that position would be through a block trade.

To the two people who will read this post (not the most exciting stock) feel free to dispute any figures or assumptions. Discussion would be great.