Report
Nicholas Cortellucci, CFA

Small-Caps Positioned to Benefit from Multi-Year Defence Spending Cycle

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.
Underlyings
BOS Better Online Solutions

B.O.S. Better Online Solutions is a provider of turnkey AIDC ("Automatic Identification and Data Collection") mobility solutions and a global distributor of electronic components for the civil aircraft industry, defense industry and high technology equipment manufacturers. Co.'s RFID and mobile products and services assist customers in improving the efficiency of their enterprise logistics, enhancing and automating their data collection processes and improving asset tracking. Co. operates its business through two divisions: Supply Chain Solutions and RFID and Mobile Solutions.

Calian Group Ltd

Calian Group is engaged in the provision of technology services to industry and government in the health, workforce management, information technology (IT) services and training domains as well as the design, manufacturing and maintenance of systems to the communications and defence sectors. Co. operates in two segments, Systems Engineering, which designs and manufactures equipment for the satellite ground-based infrastructure market; and Business and Technology Services, which provides workforce augmentation as well as the long-term management of projects, facilities and customer business processes in the areas of IT services, training, healthcare and workforce management services.

Coda Octopus Group Inc.

Coda Octopus Group designs, and manufactures products for the subsea market including its range of real time 3D sonar solutions. The company's products are marketed under the CodaOctopus? brand and consist of three main product lines: DataAcquisition Products, which includes integrated hardware acquisition devices which includes feature post-processing software for all levels of geophysical survey work; MotionSensing Products, which consists of a range of GPS-aided precision attitude and positioning systems and software for all types of marine survey; and RealTime 3D Sonar, which includes its real time 3D imaging sonars (Echoscope?) and software including methods for rendering and tracking.

CPI Aerostructures

CPI Aerostructures is a supplier of aircraft parts for fixed wing aircraft and helicopters in both the commercial and defense markets. The company is a manufacturer of structural aircraft parts and aerosystems. Within the global aerostructures supply chain, the company is either a Tier 1 supplier to aircraft original equipment manufacturers or a Tier 2 subcontractor to Tier 1 manufacturers. The company also is a prime contractor to the U.S. Department of Defense, primarily the U.S. Air Force. In addition to its assembly operations, the company provides engineering; program management, supply chain management, and maintenance repair and overhaul services.

Firan Technology Group Corp.

Firan Technology Group is a supplier of aerospace and defense electronic products and subsystems. Co. also provides prototype development and manufacturing services. Co. has two operating segments: FTG Circuits and FTG Aerospace. FTG Circuits manufactures printed circuit boards within the North America marketplace for the aviation, defence and related industries. FTG Aerospace manufactures illuminated cockpit panels, keyboards, bezels and sub-assemblies for original equipment manufacturers of avionic products and airframe manufacturers. Co. distributes its products primarily in Canada, the United States, Asia, Europe and other countries.

Intermap Technologies Corp.

Intermap Technologies is a digital mapping company creating uniform high-resolution 3D digital models of the earth's surface. Co. is mapping entire countries and building a uniform national database, called NEXTMap®, consisting of elevation data and orthorectified radar images. Co.'s digital maps are used in a range of applications, including geographical information systems, engineering, global positioning system maps, insurance risk assessment, oil and gas, renewable energy, hydrology, environmental planning, wireless communications, transportation, and 3D visualization. Co.'s products are also used to improve the positional accuracy of airborne and satellite images.

KVH Industries Inc.

KVH Industries is a manufacturer of solutions that provide Internet, television, and voice services via satellite to mobile users at sea and on land. The company is also a provider of commercially licensed entertainment, including news, sports, music, and movies, to commercial and leisure customers in the maritime, hotel, and retail markets. In addition, the company develops and distributes training films and eLearning computer-based training courses to commercial maritime customers. The company is also a manufacturer of navigational sensors and integrated inertial systems for defense and commercial inertial navigation applications. The company's segments are: mobile connectivity segment and inertial navigation segment.

Liberty Defense Holdings Ltd

M TRON INDUSTRIES INC

Magellan Aerospace Corp.

Magellan Aerospace, through its subsidiaries, is engaged in the engineering, manufacture, repair and overhaul of components and assemblies for the aerospace industry; the modernization, repair and overhaul jet engines, defense aircraft and helicopters; the design and manufacture of rocket and satellite systems; and the design and production of magnesium and aluminium castings, primarily for the aerospace industry. Co. operates in two segments, Aerospace and Power Generation Project. Co. has operations in Canada, the U.S. and the U.K.

Mistras Group

Mistras Group is a provider of technology-enabled asset protection solutions used to evaluate the safety, structural integrity and reliability of critical energy, industrial and public infrastructure. The company combines products and technologies, mechanical integrity, non-destructive testing, destructive testing, mechanical and predictive maintenance services, process and fixed asset engineering and consulting services, proprietary data analysis and enterprise inspection database management and analysis software, Plant Condition Management Software, to deliver a portfolio of customized solutions, ranging from routine inspections to asset integrity management and assessments.

Nanalysis Scientific Corp

One Stop Systems

One Stop Systems designs, manufactures and markets computing modules and systems. These computers allow the company's customers to provide computing capabilities (often embedding within their equipment) to their target markets. The company provides custom servers, compute accelerators, solid-state storage arrays and system expansion systems. In addition, the company is a provider of PCIe over cable adapters and expansion systems. PCIe is the communication protocol used within servers for Input/Output expansion.

RED CAT HLDGS INC

Tat Technologies Ltd.

TAT Technologies is a provider of services and products to the commercial and military aerospace and ground defense industries. Co. operates under four segments: (i)original equipment manufacturing or "OEM" of heat transfer solutions and aviation components (ii) heat transfer services and products (iii) maintenance, repair and overhaul or “MRO” services for aviation components, especially in the area of landing gear and auxiliary power units (APU), and (iv) overhaul and coating of jet engine components, including turbine vanes and blades, fan blades, variable inlet guide vanes and afterburner flaps.

Volatus Aerospace Corp

Provider
Atrium Research Corporation
Atrium Research Corporation

Atrium Research provides institutional quality issuer paid research on North American public equities using deep fundamental analysis. Our research reports are disseminated through Bloomberg, FactSet, Capital IQ, Reuters and many more, as well as through our social media and email distribution lists. 

Analysts
Nicholas Cortellucci, CFA

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