Harbor Diversified Stocks: Trading at a Deep Discount (OTCMKTS: HRBR)

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The following segment is taken from this fund letter.

Diversified Port (OTCPK:HRBR)

We’ve added a new special situation to our collection: Diversified Port.

Harbor is a holding company for Wisconsin Airlines. Usually I have little interest in airlines of all kinds, but Harbor Diversified is a special case. At around $2.40 per share, Harbor is trading at a steep discount to liquidation value.

Harbor is trading so cheap because Air Wisconsin’s capacity deal with United Airlines expires in February 2023 and United has refused to renew the contract on the same terms. Air Wisconsin is in talks with United and other airlines on a new contract, but chances are a contract won’t be secured and Air Wisconsin’s fleet will be grounded next February. But even in the event that Air Wisconsin fails to secure a new contract, Harbor’s remaining working capital, fleet and revenues are worth far more than the sale price of the company.

At the end of the year, the company had more than $2 per share in cash, securities and interest-bearing receivables, net of debt, all future lease payments and stock liquidation preference. privileged. Air Wisconsin will produce nearly $90 million in pretax cash flow over the life of its remaining contract. And then there is the fleet itself. Air Wisconsin owns 64 Bombardier CRJ200s. These planes are old and the CRJ200 itself isn’t exactly a popular jet, but they’re worth it Something. Even at $250,000 each, less than 15% of book value, that’s $16 million or 25 cents per share.

I expect that within the year Harbor Diversified will either announce a new contract for Air Wisconsin or begin preparations for an orderly liquidation. In a liquidation scenario, stocks are worth north of $3. If a new contract is secured, their value could be significantly higher as investors begin to value the company as a going concern instead of a history of liquidation.

For its part, Air Wisconsin seems optimistic about obtaining a new contract. The company is very active on the hiring front, looking for pilots, flight attendants and mechanics; not exactly the behavior of an airline expecting to shut down permanently in 10 months.

Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.

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