Magellan Aerospace (TSE:MAL): A High-Conviction Buy in a Resurgent Aerospace Sector

The aerospace sector is experiencing a long-awaited renaissance, driven by pent-up demand for commercial aircraft, robust defense spending, and the accelerating shift toward next-generation technologies. Amid this backdrop, Magellan Aerospace (TSE:MAL) stands out as a compelling investment opportunity. With a combination of improving profitability, strong EBIT margin expansion, and a governance structure that aligns insiders with shareholders, the company is well-positioned to capitalize on the sector's resurgence.

Profitability: A Foundation for Sustainable Growth

Magellan's second-quarter 2025 results underscore its ability to navigate macroeconomic headwinds while delivering consistent growth. Revenue rose to $249.8 million, a $6.9 million increase year-over-year, reflecting higher volumes and favorable product mix. Gross profit expanded to $33.3 million, or 13.3% of revenue, up from 11.0% in 2024, driven by contract rehabilitations and operational efficiencies. While rising material costs and foreign exchange losses (a $6.3 million loss in Q2 2025) pressured net income to $5.4 million from $7.4 million in the prior year, the company's EBITDA of $21.1 million—down slightly from $21.9 million—remains resilient.

What's particularly encouraging is the $25.8 million in operating cash flow generated in Q2 2025, a 78% increase from the same period in 2024. This reflects disciplined working capital management and the company's ability to convert revenue into cash. With a $75 million credit facility extended through 2027 and an option to expand it to $150 million, Magellan has the liquidity to fund growth initiatives without overleveraging.

EBIT Margin Expansion: A Key Driver of Value

The company's EBIT margin improvement—from 11.0% to 13.3% in two years—is a critical indicator of its operational strength. This expansion is not merely a function of cost-cutting but reflects strategic investments in high-margin programs and a shift toward more complex, value-added aerospace components. For instance, Magellan's joint venture with Aequs Private Limited to establish an aerospace sand casting facility in India and its renewed contract with GE Aerospace for the KF-21 aircraft program are expected to diversify revenue streams and enhance margins.

While EBITDA dipped slightly in Q2 2025 due to higher administrative expenses and FX losses, the underlying trend remains intact. The company's ability to offset rising costs through volume growth and product mix optimization suggests that margins will stabilize and potentially expand further as these programs scale.

Insider Alignment: A Governance Advantage

Magellan's governance structure is another compelling factor. Insiders own 79% of the company, including 75% held by CEO Norman Edwards and 3.9% by Larry G. Moeller. This level of ownership is rare and signals a strong alignment of interests between management and shareholders. The CEO's compensation of CA$1.2 million—well below the CA$2.5 million median for peers—further reinforces this alignment, as it prioritizes long-term value creation over short-term gains.

Recent insider activity also supports this narrative. In Q1 2025, the company executed a 400-share repurchase, a move that could indicate management's confidence in the stock's intrinsic value. While the transaction size is small, it aligns with a broader trend of insider buybacks and corporate restructuring aimed at enhancing shareholder equity.

Institutional ownership, though modest at 2.26%, includes stable holdings by funds like Dimensional Fund Advisors and Royce Value Trust Inc, which are known for long-term, passive strategies. This suggests that institutional investors view Magellan as a defensive play in the aerospace sector, with upside potential as margins expand and demand for aerospace components grows.

Investment Thesis: A High-Conviction Buy

Magellan Aerospace's combination of profitability, margin expansion, and governance strength makes it a standout in a sector poised for growth. The company's strategic investments in India and its renewed defense contracts position it to benefit from both commercial and defense tailwinds. Meanwhile, its strong insider ownership and disciplined capital allocation practices provide a governance framework that prioritizes shareholder returns.

For investors seeking exposure to the aerospace renaissance, Magellan offers a compelling risk-reward profile. The stock's current valuation, trading at a discount to its historical EBITDA multiple, appears undemanding given its growth prospects. With a $1.0 billion market cap and a $813 million insider stake, the company is well-positioned to compound value over the long term.

Conclusion

Magellan Aerospace is not just riding the wave of the aerospace sector's recovery—it is actively shaping it. By leveraging its operational expertise, strategic partnerships, and a governance model that prioritizes long-term value, the company is building a durable competitive advantage. For investors with a multi-year horizon, Magellan represents a high-conviction buy in a sector where patience and discipline are rewarded. As the aerospace industry continues to rebuild, Magellan's engines are revving at just the right time.