Following up on the Q&A re: Magellan Aerospace Corporation, can you please provide a sense of the pros and cons of this company as a long-term investment? Does it have any moat features? What are the risks and potential rewards going forward? What about position size - is a full position justified?
Thank you so much, Michael
MAL is a small ($1.0B market cap) aerospace name that pays a small yield of 0.6%. It is up 72% year-to-date and 113% on a one-year basis. MAL has a diversified customer base and long-term contracts, serving customers like Boeing, Airbus, and Lockheed Martin. A significant portion of its revenues are tied to a few major clients, and any changes in these clients' production schedules or contract terms could impact its financials. It has a competitive edge, or moat, due to its long-term contracts with major aerospace manufacturers. The aerospace market is projected to grow, and it is expected to enhance production capabilities and margins through its new facilities in Canada and India. It has been rising significantly recently, but due to its small size, we would be comfortable with a starter position, potentially moving into a half position or less.