The quest for value can take you to some very small places these days. It recently led me to a new name, Harbor Diversified (HRBR) , with its $120 million market cap, and an interesting array of assets. Formerly known as Harbor BioSciences, HRBR is a holding company which is the parent company of Air Wisconsin, a regional partner of United Airlines (UAL) .
I've never been very interested in owning airlines before, but this appears to be a special situation, namely a potential asset play. As of the most recently reported quarter, HRBR had $170 million, or about $2.40/share in cash and short-term investments, and $72.4 million in debt. That puts net cash/short-term investments per share at $1.38. On Friday, HRBR closed at $2.19 - I'm including the company's Class C Convertible Redeemable Preferred Stock, immediately redeemable into 16.5 million shares in any calculations.
The kicker here is the company's ownership of 64 CRJ-200 regional jets, which have 50 seats. For $2.19 per share, investors are getting $1.38 in cash plus fixed assets carried on the books at $1.39. It is unclear what a used CRJ-200 jet would sell for, but from the figures I've seen, and there is not a lot of data here, it could be excess of the current carrying value.
From an operating perspective, the company has earned $1.64/share (fully diluted) over the trailing 12 months, but that does include an estimated $85 million from the government's pandemic-related payroll support plan. So, the current trailing price-earnings ratio of one that is being reported, needs to be taken with a grain of salt. By my calculations, in absence of payroll support funds, the company would still have been wildly profitable. With the payroll support, it bottom-lined $117 million over the past 12 months. Without it, it would have earned at least $32 million, and likely more with tax adjustments.
One of the other issues for HRBR, and likely one of the reasons it trades so cheaply relative to several measures, including .79x tangible book value and enterprise value (EV) of just $21 million, is some uncertainty in its relationship with United Airlines. UAL has announced that it intends to reduce or discontinue the use of 50-seat aircraft - the same type Air Wisconsin utilizes. To that end, Air Wisconsin is exploring options of upgrading its fleet, and potentially converting the current jets into freighters.
HRBR is not for the faint of heart. It is a cash and asset-rich name, but there are some fleas to deal with. In deep value, fleas are part of the program.
(Please note that due to factors including low market capitalization and/or insufficient public float, we consider HRBR to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.)