Magellan Aerospace Corp (MAL:TOR) Analysis

Magellan Aerospace Corporation is a Canadian supplier of components for the aerospace and power generation industries. The company produces jet engines, missiles, gas turbines and satellites. Although Magellan is a very young company founded in 1996, its origins, through its purchases (notably that of Bristol Aerospace), date back to 1930. The company has 3,800 employees.

Quality dividend payers are usually found in unsexy sectors, such as consumer staples. When this stock came under my radar, I have to say I was very skeptical at first. The name alone scared me. But I took a chance, and I have to say that Magellan's Voyage did not disappoint.

Valorization

The stock is trading at a fairly reasonable price for this type of business. In fact, the price is 10.2 times recurring earnings, 1.89 times tangible book value, 1.17 times sales and 17 times free cash flow. From a dividend perspective, it is certainly not great, with a yield of only 1.43%, but this is explained by an ultra-conservative distribution ratio of 14.6% relative to earnings and 24.6% relative to free cash flow. Magellan therefore has a substantial margin of safety and growth for its dividend. The Canadian company has also increased it at a regular and impressive rate of 36% per year on average over the last five years!

Balance sheet & result

Just like the dividend, profits, cash reserves and asset values are growing over the long term. Magellan is clearly succeeding in creating value for its owners over the long term and this is reflected in the share price which has more than quadrupled in the last five years.

Cash reserves are good, with a current ratio up to 2.09 and a quick ratio of 1.16. Magellan therefore has no problem meeting its current financial obligations. The gross margin is certainly not huge, at 18.1%, but it is increasing. Above all, thanks to good management of overheads, the net margin and free cash flow are good, at 11.5% and 6.9% respectively. Profitability is excellent, with an ROA of 11.3%, an ROE of 17.1% and a return on cash flow from assets of 13.2%.

Long-term debt to assets is not only down sharply, but also at a very low level now, at 3.56%. Magellan's total debt has been falling for several years and the company would be able to pay it off in just over a year using its free cash flow. As for the number of shares outstanding, it has been stable for many years, which is a good point for the shareholder who thus avoids any dilution of his assets.

Conclusion

Magellan is a company with very solid fundamentals. Of course, we are "navigating" here in a high-tech and future-oriented sector of activity, which is not usual in an approach oriented towards increasing revenues. Nevertheless, paradoxically, the stock is trading at a very affordable price and the price is not too sensitive to market variations, with a beta of only 0.6.

Let us also note that surprisingly this beautiful company is very little followed by analysts and institutions. We dare not imagine what it will give when this little world wakes up. The contrarians will appreciate it.

I believe the stock should nearly double to reflect its intrinsic value and the dividend should do at least as well. So I just boarded Magellan's ship.