ASSA ABLOY: Unlocking Long-Term Value

ASSA ABLOY is the global leader in access solutions, providing locks, entrance systems, identity management, and digital access technologies used in homes, businesses, and critical infrastructure around the world. From trusted residential brands to advanced electromechanical and connected solutions, the company combines strong local presence with global scale and a long history of disciplined acquisitions. With increasing demand for safety, digitalization of buildings, and a steady shift toward higher value access systems, ASSA ABLOY is positioned at the center of durable structural trends. The question remains: Does this access solutions leader deserve a place in your portfolio?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me. 

For full disclosure, I should mention that I do not own any shares in ASSA ABLOY at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of ASSA ABLOY, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

ASSA ABLOY was founded in 1994 through the merger of Swedish ASSA and Finnish Abloy. Over the past three decades, the company has transformed from a regional Nordic lock manufacturer into the global leader in access solutions. Today it operates in more than 70 countries, employs around 63.000 people, and serves customers across residential, commercial, and institutional markets. Its offerings span mechanical and electromechanical locks, digital door locks, entrance automation, identity management, mobile credentials, and complete access control systems. From the perimeter of a building to its core, ASSA ABLOY provides solutions that enable safe, secure, and convenient access to both physical and digital spaces. A defining characteristic of the business is its strong exposure to the aftermarket. Around two thirds of total revenue comes from upgrades, replacements, services, and maintenance rather than new construction. Locks wear out, security standards evolve, and customers increasingly transition from mechanical to digital systems. This creates recurring demand that softens the impact of economic downturns and reduces reliance on cyclical building activity. Unlike many capital goods companies that depend heavily on new project volumes, ASSA ABLOY benefits from a stable installed base that continuously generates follow on revenue. The company’s competitive moat is grounded in its uniquely decentralized structure, reinforced by the world’s largest installed base, a powerful multi brand portfolio, high switching costs, innovation leadership, and operational scale. The decentralized model allows decisions to be made close to the customer. Access needs are often shaped by local building codes, security standards, and cultural preferences, which vary significantly between countries. Local business units understand these nuances and can tailor solutions accordingly. At the same time, they benefit from the scale of a global organization through shared innovation resources, procurement advantages, and best practice processes. This combination of local agility and global strength creates responsiveness that is difficult for more centralized competitors to match. The company also benefits from the largest installed base of locks and access systems in the world. Once a building is equipped with a specific system, replacing it entirely can be costly and disruptive, especially in mission critical environments such as hospitals, airports, data centers, and government facilities. This creates meaningful switching costs and long term customer relationships. The installed base also provides a natural pathway for upgrades to electromechanical and digital solutions, supporting structural growth. Through nearly 400 acquisitions, ASSA ABLOY has built a portfolio of more than 200 brands, including globally recognized names such as Yale, HID, Kwikset, and Vingcard. These brands carry strong trust and recognition in their respective niches. In security related categories, where reliability is essential, trusted brands often command premium pricing. The multi brand strategy allows the group to serve different segments and geographies while preserving local brand equity. Operationally, the company combines local assembly close to customers with centralized production of strategic components. This hybrid footprint enables customization according to local standards while maintaining cost efficiency through scale. Continuous efficiency programs, professional sourcing, lean processes, and disciplined capital allocation support margins and profitability.

Management

Nico Delvaux serves as the CEO of ASSA ABLOY, a position he has held since 2018. He brings more than three decades of international leadership experience in industrial and technology driven companies, with a strong background in decentralized organizations and global manufacturing businesses. Before joining ASSA ABLOY, Nico Delvaux was President and CEO of Metso, where he guided the company through a period of strategic realignment and operational focus. Earlier in his career, Nico Delvaux spent more than 20 years at Atlas Copco Group, holding a broad range of senior leadership roles across multiple geographies and business areas. He served as Business Area President for Compressor Technique from 2014 to 2017 and previously led the Construction Technique division. His earlier responsibilities included leadership roles in sales, marketing, service, and acquisition integration, with assignments in Belgium, Italy, China, Canada, and the United States. This international exposure gave Nico Delvaux firsthand experience in managing complex industrial operations while staying close to customers and local markets. Nico Delvaux holds a Master of Engineering in Electromechanics and an Executive MBA, combining deep technical understanding with strategic and financial expertise. His engineering background is particularly relevant in a business such as ASSA ABLOY, where product innovation, operational efficiency, and technological transition from mechanical to digital solutions are central to long term success. At ASSA ABLOY, Nico Delvaux is recognized for reinforcing the company’s decentralized culture while sharpening its operational discipline. Under his leadership, the group has continued to execute its long standing acquisition strategy, including transformative transactions such as the acquisition of the Hardware and Home Improvement division from Spectrum Brands, significantly strengthening its presence in the North American residential market. At the same time, Nico Delvaux has accelerated the company’s focus on electromechanical products, digital access solutions, and identity management, ensuring that ASSA ABLOY remains at the forefront of the structural shift toward connected and intelligent access systems. Nico Delvaux is often described as pragmatic, execution focused, and committed to continuous improvement. His background at Atlas Copco, a company well known for its disciplined capital allocation and decentralized operating model, aligns closely with the cultural foundations of ASSA ABLOY. This alignment has helped maintain strategic continuity while supporting profitable growth and margin resilience across economic cycles. Given his extensive global experience, structured approach to operations, and commitment to innovation and long term value creation, I believe Nico Delvaux is well positioned to continue strengthening ASSA ABLOY’s leadership in the global access solutions industry and to guide the company through its next phase of development.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year.  ASSA ABLOY’s ROIC has mostly been above 10% over the past decade, with only a temporary dip in 2020. For a global industrial company with manufacturing operations and an active acquisition strategy, that is a solid level of profitability. It shows that the company has generally been able to grow while earning returns comfortably above its cost of capital. A key reason for this performance is the strength of the aftermarket. Around two thirds of revenue comes from upgrades, replacements, and service rather than new construction. Once a lock or access system is installed, it needs maintenance, parts, and eventually modernization, especially as security standards and digital solutions evolve. This type of revenue typically requires less additional investment than large new building projects. As a result, profits can increase without the company having to expand its asset base at the same pace, which supports healthy returns on capital. The large installed base also creates meaningful switching costs. Replacing a complete access system in a hospital, airport, data center, or government building is costly and disruptive. Customers therefore tend to stay within the same ecosystem, which provides pricing power and stable long term relationships. Stable margins combined with efficient use of assets naturally lead to consistent double digit returns. The decentralized structure likely contributes as well. Local units are responsible for their own profitability and capital employed, which encourages careful use of resources and disciplined investment decisions. When responsibility sits close to the customer and the local market, investments are often made with a clear focus on returns rather than scale for its own sake. Acquisitions have also supported returns over time. ASSA ABLOY has built a strong track record of acquiring and integrating smaller companies in a fragmented industry. When these businesses are integrated into existing structures and synergies are realized, profitability can improve without a proportional increase in the capital base. This helps sustain attractive returns even as the company expands. Management does not focus explicitly on ROIC in communication, but they do emphasize return on capital employed and Operational Value Added, which combines operating profit with the capital base. This approach signals that value creation is assessed by looking at both earnings and the resources required to generate them. Even if return on capital employed fluctuates slightly from year to year, the underlying focus on capital efficiency remains clear. Looking ahead, maintaining returns above 10% appears reasonable. The high share of recurring aftermarket revenue, the strong installed base, and the ongoing shift toward higher value electromechanical and digital solutions support margins. Continuous efficiency initiatives and optimization of the manufacturing footprint should also contribute. Returns may fluctuate in individual years, especially following large acquisitions that increase the balance sheet or during periods of weaker construction activity. Investments in digital capabilities may also raise the capital base before the full earnings impact is visible. Still, the overall structure of the business suggests that low double digit returns are achievable over time, provided the company continues to combine disciplined capital allocation with profitable growth.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. ASSA ABLOY has managed to grow its equity in most years primarily because the business consistently generates profits and retains a meaningful portion of them. When a company earns solid returns on capital and reinvests part of those earnings into the business or into acquisitions that create value, equity naturally compounds over time. Given that ASSA ABLOY has delivered double digit ROIC in most years, it has been able to expand its capital base while still maintaining attractive profitability. Another reason equity has grown steadily is the company’s acquisition strategy. ASSA ABLOY operates in a highly fragmented industry and has completed hundreds of acquisitions over the past decades. When these acquisitions are financed partly through internally generated funds and are integrated successfully, they add to total assets and, over time, to retained earnings. As long as acquired businesses generate returns above the cost of capital, equity growth is value creating rather than dilutive. The strong aftermarket component of the business also contributes indirectly to equity growth. With around two thirds of revenue coming from upgrades, replacements, and services, earnings tend to be relatively stable across cycles. That stability reduces the risk of large profit swings that could erode equity in weaker years. Even during more challenging environments, the installed base continues to generate cash flow, supporting a steady accumulation of retained earnings. The decline in equity in 2025 does not necessarily indicate a deterioration in the underlying business. Even when profits are solid, reported equity can fall due to balance sheet and currency effects rather than operational weakness. ASSA ABLOY operates in more than 70 countries, and a large share of its assets is located outside Sweden. When these assets are translated back into Swedish kronor, exchange rate movements can have a meaningful impact on reported equity. When the Swedish krona strengthens, the value of foreign subsidiaries appears lower in the consolidated accounts, even if their performance in local currency is unchanged. This translation effect can reduce equity without reflecting a real economic setback. Equity can also be affected by capital structure decisions, such as share buybacks or other balance sheet adjustments. These actions reduce reported equity but do not signal weaker fundamentals. Whether equity resumes its upward trend depends primarily on the company’s ability to continue generating solid profits and earning attractive returns on capital. Given ASSA ABLOY’s strong installed base, recurring revenue profile, and long track record of disciplined acquisitions, the structural foundations for long term equity growth remain in place. While individual years may show fluctuations due to currency movements or financial decisions, the underlying business model supports continued compounding over time.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. ASSA ABLOY’s free cash flow has grown meaningfully over the past decade, even though there have been a few years with temporary declines, including 2025. The overall trend is clearly upward, and especially in the second half of the period free cash flow has reached historically high levels. There are a few structural reasons behind this development. First, the business model supports strong cash generation. Around two thirds of revenue comes from the aftermarket, such as replacements, upgrades, and service. This type of revenue tends to be less volatile and often requires limited additional investment compared to large new construction projects. When profitability is stable and capital intensity is moderate, a large portion of operating profit can be converted into cash. Second, the company has been very good at turning its profits into real cash. In recent years, the cash coming into the business has actually been higher than the reported profit. That means the earnings are supported by strong cash inflows, not just numbers in the income statement. This reflects careful cost control and good day to day management of the business. The fact that this has happened several years in a row suggests that strong cash generation is part of the company’s normal way of operating, not something temporary. The temporary decline in free cash flow in 2025 does not necessarily signal a structural problem. Management mentioned that currency effects reduced reported cash flow by around 2% in actual value. In addition, capital expenditures appeared higher compared to the previous year, partly because the prior year included proceeds from selling buildings in EMEIA and APAC. When such one time transactions disappear, year over year comparisons can look weaker even if the underlying business remains strong. The free cash flow margin has also been relatively healthy, especially in recent years. This reflects both solid operating margins and tight control over capital expenditures and cash tied up in the business. The combination of steady earnings growth and strong cash conversion has allowed free cash flow to expand meaningfully over time. As for sustainability, the outlook for continued strong free cash flow appears reasonable. The high share of recurring aftermarket revenue, the large installed base, and ongoing efficiency initiatives support stable operating cash flow. Unless the company significantly increases capital expenditures or experiences a major downturn in demand, free cash flow should remain at healthy levels. Growth in free cash flow will likely follow earnings growth over time, though it may fluctuate from year to year due to acquisitions, restructuring, or currency movements. ASSA ABLOY uses its free cash flow in a disciplined way. A portion is returned to shareholders through dividends, with a payout ratio that has averaged around the low to mid 40% range of earnings in recent years. The remaining cash is primarily used to fund acquisitions, reduce debt when appropriate, and invest in organic growth initiatives such as product development and manufacturing optimization. Given the company’s long history of value creating acquisitions in a fragmented industry, free cash flow is an important strategic tool for strengthening its competitive position. The free cash flow yield suggests that the shares are currently trading at a premium valuation. However, we will return to valuation later in the analysis.

Debt

Another important area to investigate is debt, and we want to see whether a business has a reasonable level of debt that could be paid off within three years. To assess this, we divide total long term debt by earnings. When applying this measure to ASSA ABLOY, the result shows that it would take 3,16 years of earnings to pay off its long term debt. This is slightly above the three year threshold, but it is partly due to the HHI acquisition, the largest in the company’s history. It is also worth noting that leverage has been trending in the right direction. Management highlighted that net debt to equity has declined from 65% to 63% year over year, and net debt to EBITDA has improved from 2,3 to around 2,1. This indicates that the balance sheet is gradually strengthening as earnings grow and debt is reduced. In other words, the elevated debt level is not increasing, but slowly coming down. Management has expressed confidence in the current debt level and emphasizes that the company still has a strong financial position and room to continue its acquisition strategy. While the debt is slightly higher than I would prefer, it does not concern me. A somewhat elevated debt load is often part of the model when investing in a disciplined serial acquirer like ASSA ABLOY, especially following a large strategic acquisition. The key question is whether earnings remain stable and returns on capital stay healthy, and so far that appears to be the case.

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Risks

Macroeconomic factors are a risk for ASSA ABLOY. The company’s performance is partly influenced by the broader economic environment, especially through its exposure to residential construction, renovation activity, and logistics related facilities such as warehouses and distribution centers. Although ASSA ABLOY benefits from a large aftermarket business that provides stability, a meaningful share of revenue is still linked to new construction and renovation. When housing markets slow down or commercial investment weakens, demand for locks, garage doors, automatic entrances, and loading dock solutions tends to decline. Management has acknowledged that market conditions have been challenging, particularly in residential markets in the United States and Europe. Demand for garage doors in the US has been soft, and residential markets in parts of Europe, especially France, remain weak. In Europe, the logistics market has also slowed further, reflecting reduced capital investment in warehousing and distribution infrastructure. A major driver of this weakness is the high interest rate environment. Elevated mortgage rates reduce housing affordability and make homeowners less willing to move. In the United States, many households have locked in mortgage rates below 5%, while current rates are closer to 6%. This gap discourages home sales, which in turn reduces demand for housing related products. Even if interest rates start to decline, this mismatch between existing and current mortgage rates can delay a recovery in housing activity. In Europe, recovery has also been slow, particularly in countries tied closely to ECB policy. Management has noted that markets that began cutting interest rates earlier, such as Sweden and New Zealand, are starting to show signs of improvement, mainly in renovation rather than new construction. This suggests that monetary policy plays an important role in driving demand for access solutions. More broadly, construction is a cyclical industry. During economic downturns or periods of tighter credit conditions, new building activity typically slows. This reduces demand for new locks, doors, and entrance systems. Although the company’s large installed base and renovation business provide resilience, a prolonged downturn in residential or commercial construction can still weigh on growth and margins.

Brand and reputation risk is a risk for ASSA ABLOY because trust is at the core of its business. The company does not just sell physical products. It sells security, safety, and reliability. Customers choose its solutions because they trust that doors will lock properly, access systems will function without failure, and identity solutions will protect sensitive environments. If that trust is damaged, the consequences can extend beyond a single product line. ASSA ABLOY operates with more than 200 brands, including well known names such as Yale, HID, and Vingcard. Many of these brands have been built over decades and hold strong positions in their respective markets. That brand equity allows the company to charge premium prices and maintain long term relationships with distributors, property developers, hotels, governments, and large institutions. However, the same strength can become a vulnerability. If one brand experiences a serious quality issue, product malfunction, or security breach, the reputational impact can spread quickly, especially in today’s digital and media environment. This risk is particularly relevant because many of the company’s products are safety critical. A malfunctioning digital lock, a failure in an automatic entrance system, or a breach in an identity management solution could have real world consequences. Even if such incidents are isolated, they can attract significant media attention and lead customers to question reliability across the broader portfolio. In security related industries, perception can change rapidly, and rebuilding trust can take time. The ongoing shift toward digital and connected access solutions also increases complexity. As products become more software driven and integrated with networks, the risk of cyber vulnerabilities rises. A high profile cyber incident involving identity solutions or mobile access credentials could damage confidence not only in a specific product but in the company’s technological capabilities more broadly. There is also integration risk tied to the company’s acquisition strategy. ASSA ABLOY has acquired hundreds of businesses over the years. If newly acquired companies do not fully meet the group’s quality, compliance, or ethical standards, this could create reputational challenges. Maintaining consistent standards across such a broad and decentralized organization requires strong oversight and governance.

Regulation is a risk for ASSA ABLOY because the company operates in a highly regulated industry across many jurisdictions, and its products are directly tied to safety, security, and increasingly data protection. At the most basic level, locks, doors, entrance systems, and identity solutions must comply with strict certification standards. These standards differ from country to country and can cover fire safety, building codes, accessibility requirements, cybersecurity, and data privacy. As ASSA ABLOY expands further into digital and connected access solutions, regulatory requirements related to software security and personal data protection become more important. If standards change or become stricter, the company may need to redesign products, invest in additional testing, or delay launches. Non compliance could result in fines, product recalls, or exclusion from certain markets. Antitrust regulation is another clear risk. ASSA ABLOY is the global leader in access solutions and holds strong market positions in several regions. This naturally attracts scrutiny when it pursues large acquisitions. A recent example was the acquisition of the HHI division from Spectrum Brands, which faced a lawsuit from the U.S. Department of Justice. The transaction required divestments and a formal settlement process before it could proceed. Later, regulators raised concerns about compliance with parts of the agreement. Even though such issues can be resolved, they illustrate that regulatory approval cannot be taken for granted. Delays, required asset sales, or legal disputes can increase costs and reduce the strategic value of acquisitions. Given ASSA ABLOY’s long history as a serial acquirer, this is particularly relevant. Future large acquisitions may face similar scrutiny, especially in markets where the company already has a strong presence. Antitrust authorities may impose conditions that limit pricing, restrict integration, or require divestments. Trade policy is another area of uncertainty. With production and sales spread globally, the company is exposed to tariffs and changing trade rules. For example, if new tariffs are introduced on door hardware or related components, this could increase costs or disrupt supply chains. Management has indicated that pricing adjustments can help offset such effects, but there is always a timing risk between higher input costs and the ability to pass them on to customers. Regulatory changes can also affect demand. In the United Kingdom and Ireland, delays in commercial projects have been linked to new government legislation. When building regulations change, developers may postpone projects until there is clarity. This can temporarily reduce demand for access solutions tied to those projects. In general, changes in construction related legislation can slow down decision making and delay revenue, even if long term demand remains intact.

Reasons to invest

Favorable global trends are a reason to invest in ASSA ABLOY because the company operates in an industry supported by long term structural drivers rather than short lived themes. The global access solutions market is estimated to exceed USD 100 billion annually and has historically grown steadily, supported by fundamental needs that are unlikely to disappear. The most important driver is the rising demand for safety and security. As societies become more complex and interconnected, the need to protect people, buildings, and assets increases. Public safety concerns, critical infrastructure protection, and higher awareness of security threats push governments, institutions, and businesses to invest in reliable access control systems. ASSA ABLOY’s products are directly aligned with this need, from secure locks and doors to identity management and automated entrance systems. Security is not discretionary spending in many environments, which supports long term demand. An increasingly strict regulatory environment also supports growth. Building codes, fire safety rules, emergency access standards, and surveillance requirements are becoming more demanding. Schools, hospitals, airports, and public buildings must meet evolving compliance standards. This drives demand for certified and technologically advanced access solutions. When regulations tighten, older systems often need to be upgraded, creating additional replacement demand. Demographic trends further reinforce the growth case. Global urbanization is expected to continue for decades. The United Nations estimates that the urban population could grow by around 2,5 billion people by 2050, and a large share of the buildings needed by that time have not yet been constructed. More urban residents mean more housing, offices, transport hubs, and public facilities, all of which require access solutions. At the same time, aging populations increase demand for senior care facilities, assisted living centers, and healthcare infrastructure, where secure and convenient access systems are essential. Even in more mature markets, there is structural replacement demand. In the United States, more than half of the housing stock is over 40 years old. Aging buildings eventually require renovation and upgrades, including locks, doors, and access systems. Management has pointed out that sooner or later this renovation cycle should return, supporting demand in the repair and replacement segment. Digitalization is another powerful driver. The industry is shifting from purely mechanical solutions toward electromechanical and digital systems. These solutions offer greater convenience, integration with mobile devices, remote access management, and data capabilities. This transition allows ASSA ABLOY to offer higher value products and potentially develop service oriented business models. Electromechanical solutions have been one of the fastest growing parts of the business, reflecting strong customer adoption.

New product innovation is a reason to invest in ASSA ABLOY because it is central to how the company protects and expands its competitive position. The access solutions industry is not static. Customer needs are evolving due to digitalization, sustainability requirements, and higher expectations for convenience and security. A company that fails to innovate risks losing relevance. ASSA ABLOY has made innovation a core strategic priority. The scale of its innovation effort is significant. The company invests around 4%of revenue in research and development, operates nearly 200 R&D centers globally, employs thousands of engineers, and holds more than 10.000 patents. Over the past three years, more than 1.400 new products have been launched, and roughly a quarter of sales now come from products introduced within that period. This shows that innovation is not just incremental but materially contributes to revenue. Innovation is especially important in the transition from mechanical to electromechanical and digital solutions. Electromechanical products are the fastest growing part of the portfolio and typically carry higher value. As buildings become smarter and more connected, customers increasingly expect mobile access, remote management, integration with home automation systems, and data driven functionality. By investing heavily in digital capabilities, wireless connectivity, biometrics, and artificial intelligence, ASSA ABLOY positions itself at the forefront of this shift. Recent examples illustrate this strategy. The company launched a new range of garage door openers integrated into the Kwikset home automation ecosystem, combining digital door locks and connected devices. Management highlighted that more digital products were launched under the Kwikset brand in the last six months than in the previous five years combined. This acceleration of product development not only refreshes the portfolio but also allows the company to reposition products at higher price points and differentiate itself in mature markets. Innovation also strengthens pricing power. When ASSA ABLOY introduces new products with improved features or lower production costs, it can create new price tiers and indirectly raise prices without relying solely on formal price increases. In other words, innovation supports margin expansion by increasing perceived value. The emergence of new digital standards, such as smartphone based access and interoperable ecosystems, can also be viewed as an opportunity rather than a threat. Management has indicated that broader adoption of digital keys and smart home standards may accelerate market growth. As one of the stronger players in electromechanical access, ASSA ABLOY stands to benefit from faster market penetration. If the overall market expands and the company continues to innovate effectively, it can gain share while the category grows.

Acquisitions are a reason to invest in ASSA ABLOY because they are not an occasional add on to the strategy. They are a core growth engine that has shaped the company since its founding in 1994. Over three decades, ASSA ABLOY has completed around 400 acquisitions, transforming itself from a Nordic lock manufacturer into the global leader in access solutions. This long track record suggests that acquisitions are not experimental, but a repeatable and well tested capability. The strategy is structured and systematic. Each division works with a rolling five year plan that includes clearly defined acquisition priorities. Targets typically fall into four categories: strengthening positions in existing markets, expanding into adjacent segments, gaining access to new technologies, or improving distribution and service capabilities. The company has identified more than 900 potential targets globally and maintains ongoing dialogue with many of them. This long term relationship building increases the likelihood of disciplined deal making rather than reactive purchases. One of the main attractions of the strategy is the ability to combine organic growth with consistent acquisition driven expansion. Management has an ambition to grow through acquisitions by around 5% per year over a business cycle, and recent years have been close to that level. In 2025 alone, 23 acquisitions were completed, representing annualized sales of around SEK 6 billion. This adds meaningful scale while diversifying the product portfolio and geographic exposure. Importantly, ASSA ABLOY has demonstrated an ability to improve profitability in acquired businesses. Many targets are already strong local or regional players with established brands and customer relationships. After integration, the company applies its operating model, purchasing scale, and best practices to enhance margins. Management has highlighted margin improvement ambitions in larger acquisitions such as HHI and SKIDATA, with clear multi year targets. If these improvements are realized, they can move divisional margins higher and create significant value. The decentralized structure supports successful integration. Local M&A teams handle due diligence and integration close to the business, while following group wide standards and financial criteria. This balance between local accountability and central discipline reduces integration risk and helps preserve entrepreneurial culture in acquired companies. It also allows ASSA ABLOY to absorb multiple smaller acquisitions each year without overwhelming the organization. Acquisitions also strengthen the competitive moat. By acquiring technology companies, high security specialists, or niche manufacturers, ASSA ABLOY broadens its offering and deepens relationships with customers. Examples such as Sargent and Greenleaf in high security locking solutions and International Door Products in fire rated steel doors show how the company complements existing portfolios and reinforces market leadership. Over time, this builds scale advantages, cross selling opportunities, and stronger distribution networks.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 13,23, which is from 2025. I have selected a projected future EPS growth rate of 11%. Finbox expects EPS to grow by 10,9% a year in the next five years. Additionally, I have selected a projected future P/E ratio of 22, which is twice the growth rate. This decision is based on ASSA ABLOY's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be SEK 204,28. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy ASSA ABLOY at a price of SEK 102,14 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 21.412, and capital expenditures were 2.598. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 1.819 in our calculations. The tax provision was 5.115. We have 1.111 outstanding shares. Hence, the calculation will be as follows: (21.412 – 1.819 + 5.115) / 1.111 x 10 = SEK 222,39 in Ten Cap price.

The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With ASSA ABLOY's Free Cash Flow Per Share at SEK 16,94 and a growth rate of 11%, if you want to recoup your investment in 8 years, the Payback Time price is SEK 223,00.

Conclusion

I believe ASSA ABLOY is an intriguing company with strong management. The company has built a moat through its uniquely decentralized structure, reinforced by the world’s largest installed base, a powerful multi brand portfolio, high switching costs, innovation leadership, and operational scale. It has consistently achieved a high ROIC and strong free cash flow, and while both declined in 2025, they are expected to grow again over time. Macroeconomic factors remain a risk because a meaningful share of revenue is tied to residential construction, renovation, and commercial investment, which are sensitive to interest rates and economic conditions. When housing markets slow or businesses reduce investment, demand for locks, garage doors, and entrance systems can decline, weighing on growth and margins despite the stability of the aftermarket. Brand and reputation risk is also relevant, as the business is built on trust in safety, security, and reliability, and a serious product failure or cyber incident in one of its well known brands could damage customer confidence and pricing power. Regulation presents another risk, since the company must comply with strict safety, building, cybersecurity, and data privacy standards across many countries, while its strong market position can attract antitrust scrutiny and be affected by trade or legislative changes. At the same time, favorable global trends support the long term case, as rising demand for safety and security, stricter building regulations, urbanization, aging infrastructure, and digitalization increase the need for modern access solutions. New product innovation strengthens this position by keeping the company at the forefront of electromechanical and digital solutions, supporting organic growth and margin expansion through continuous R&D investment and a steady flow of new products. Acquisitions further enhance the investment case, as nearly 400 deals since 1994 have expanded scale, broadened the portfolio, and strengthened geographic reach, with a disciplined approach that has repeatedly improved margins and reinforced the competitive position. Overall, there are many attractive qualities in ASSA ABLOY as described in this analysis, and buying shares at the Payback Time price of SEK 223 could represent a compelling long term investment.

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