Analyst Note| Denise Molina, CFA |
Facing an easy comparison on revenue but raw material headwinds, wide-moat Assa Abloy posted a solid second quarter with 23% organic revenue growth and a 15.2% EBIT margin, in line with the 15.9% margin reported in the second quarter of 2019 after normalizing for currency and acquisitions. A positive revenue mix effect of 40 basis points more than offset a 20-basis-point negative impact from raw material prices, but more pressure is likely in the second half. Below-normal levels of travel affected demand in the global tech and APAC divisions, and we expect both divisions to see above-normal recovery growth levels stretched in 2022 as a result. Based more on long-term factors, we are increasing our fair value estimate to SEK 270 per share from SEK 215, with a higher revenue growth outlook driven by digital solutions being the key driver for the upgrade, affecting both growth and return on invested capital assumptions. The shares offer modest upside.