EGG's results could have been presented more clearly, but...

EGG's results could have been presented more clearly, but overall were as expected. Despite the poor performance, there is a compelling breakup opportunity for EGG.

At the current $1.19 share price, the market cap is $108M. Accordingly, with $38m net cash, the enterprise value is only $70m. In terms of OB Media, their H2 EBITDA annualized (EGG's 51% share) was about $9.1m. I can't imagine OBM being sold for less than 8x EBITDA, which gives a valuation of about $73m, which is higher than the current enterprise value. Accordingly, if this transaction goes ahead as I expect, you are getting the rest of the business for nothing plus a few extra million. The remaining business has an annualised EBITDA (based on the H2 results) of about $11m. So if you value this remaining business at an EBITDA multiple of 6x, which is reasonable given it is cash generative and can generate twice this EBITDA when conditions improve, then it gives you a total valuation on the business today of about $1.95 versus the $1.19 share price (and these are not overly optimistic assumptions, at least in my view).

A key risk as others have mentioned is that they could sell OBMedia and rotate the capital into overpriced weak businesses as they've done before. My strong preference would be a large special dividend and run what they have well or let mgt do a buyout.