Assa Abloy: Ideally Positioned To Benefit From an Expanding Industry Profit Pool; Shares Attractive

Assa Abloy ASSA B shares screen attractively relative to our SEK 320 fair value estimate, which remains unchanged following a transfer of analyst. Our long-term thesis for the global leader in locking and physical access systems remains intact. Specifically, Assa Abloy is best positioned, in our view, to capitalise on the substantive growth opportunity from the increasing acceptance and uptake of electromechanical locking systems currently underway. We think investors presently underappreciate the full extent of the secular growth opportunity in front of Assa Abloy—the clear global locking and physical access industry leader—with shares trading at an appealing 22% discount to our valuation.

We retain our wide economic moat rating, reflecting Assa Abloy’s suite of strong brands, which are synonymous with safety, reliability, and innovative products, and act to lower search costs for security system integrators and locksmiths. Assa Abloy boasts by far the largest installed base of mechanical locks globally, built over many decades as the world’s largest locking system and product supplier. High customer switching costs protect the steady, sticky, and highly profitable aftermarket sales of proprietary spare parts and aftermarket services that its immense installed base offers. We also retain our Medium Morningstar Uncertainty Rating and Standard Morningstar Capital Allocation Rating.

We remain constructive on the secular growth opportunity that the ongoing transition to electromechanical locking systems represents for Assa Abloy—particularly in North America and Europe, Assa Abloy’s most important geographies, which accounted for about 85% of group sales in 2022. Electromechanical lock adoption rates are presently low—we estimate adoption rates of 8% and 15%, respectively, for the residential and nonresidential segments of the North American and European markets.