We noted in January that defense was an area of Canadian government spending that was likely to grow meaningfully in response to a Trump presidency. Fast forward a few months, and Carney has committed to reaching the 2% NATO target by 2030.

Whether we get there is up for debate, but new spend is coming - with $18B of new defense investment (accrual basis) in the liberal spending plan for various initiatives:

Which companies supply our military?

While personnel remains the largest category of defense spend, equipment is rapidly growing its share of the total.

Several Canadian companies supply our military with mission critical equipment:

As we mentioned in our first look at the space industry, surveillance is by far the fastest growing segment of late…

… and it doesn’t stop at imaging from space, with companies like Kraken Robotics (PNG) helping to map out our seabed (and trading at huge premiums for doing it).

Which companies service our military?

The services segment is a little more sparse, with most companies involved in this part of the business operating in private markets.

While a huge portion of CAE’s aircraft training services are delivered to the defense industry, a spending boom in Canada shouldn’t move the needle too much, given it only represents ~10% of its top line.

A more interesting way to play could be Calian Group (CGY), who generates nearly 50% of its revenue from defense, is heavily skewed towards Canada, and trades at ~6x NTM EV/EBITDA, near a 10-year low.

The sector has ran, but valuations haven’t

The market knows Canadian defense names have a strong structural setup, with the basket running hot in recent years…

… but fundamentals have largely kept pace. There could still be room to run for a bet on national security.