What you need to know:
• Defence and aerospace small-cap equities are emerging as key beneficiaries of increasing government defence budgets.
• Canada has committed to meeting NATO’s 2% GDP target by 2025-2026, with interim boosts totalling C$9B in new spending.
• Demand for fighter jets, naval systems, NORAD upgrades, and drone defence create multi-year tailwinds for niche suppliers.
• Valuations remain below large-cap peers and historical averages despite strong revenue growth, record backlogs, and expanding margins.
Why Now?
• Canada has announced a C$9B near-term funding increase to accelerate progress toward NATO's 2% of GDP defence spending target.
• Global geopolitical instability and NATO's push to increase minimum contributions to 2.5–3.0% are driving a multi-year rearmament cycle.
• Procurement delays are being resolved with rapid contract awards across North American Aerospace Defence Command (NORAD) modernization, naval upgrades, and drone defence.
Small/Micro-Cap Beneficiaries
Calian Group (CGY:TSX) is a diversified solutions provider serving the defence, health, aerospace, and IT sectors through a combination of technology products and professional services. Calian has grown revenue at a 15% CAGR since 2017, but has signed record new contracts, setting up the Company for accelerated growth. Management is targeting C$1B in sales in FY26 (~30% growth) and C$125M in EBITDA (51% growth).
Omni-Lite Industries (OML:TSXV) produces precision components for missiles, engines, and aerospace systems through its U.S. unit, Monzite, which supplies critical parts to the PAC-3 and F-35 programs. In 2024, revenue grew 28% while adjusted EBITDA grew 246%. Revenue declined slightly in Q1/25 due to regular lumpiness, but OML signed record bookings, setting itself up for further growth.
Optex Systems (OPXS:NASDAQ) manufactures optical sights, laser filters, and periscopes for armoured vehicles and defence programs. OPXS has generated steady long-term growth, with 2024 showing revenue growth of 33% to $40M, supported by backlog conversion and improved factory utilization. This continued into 2025, with OPXS posting 26% YoY growth and 49% YoY EBITDA growth in Q1.
M-Tron Industries (MPTI:NYSE) develops RF and microwave filters, oscillators, and IMAs for radar, electronic warfare, and SATCOM. FY24 revenue increased 19% to $49M with gross margins of 46%. Backlog recently hit a record $55.5M, boosted by U.S. Navy awards and expansion across defence platforms, supporting 14% YoY revenue growth in Q1.
