ASSA ABLOY: Unlocking Long-Term Value

ASSA ABLOY is the global leader in access solutions, offering a wide range of products from mechanical locks and digital door systems to secure identities and entrance automation. With a uniquely decentralized structure, a portfolio of over 200 trusted brands, and a strong track record of acquisitions, the company has built a defensible moat in a fragmented and steadily growing industry. As the world demands more security, smarter buildings, and sustainable infrastructure, ASSA ABLOY is well-positioned to benefit from long-term structural trends. The question is: Does this access giant belong 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 start by mentioning that at the time of writing this analysis, I do not own shares in ASSA ABLOY. If you would like to see the stocks in my portfolio or copy my portfolio, you can do so on eToro, You can find instructions on how to do this 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 with 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 30 years, the company has grown from a regional Nordic lock manufacturer into the global leader in access solutions. Today, it operates in more than 70 countries with over 63,000 employees and a presence across residential, commercial, and institutional markets. Its offerings span mechanical and electromechanical locks, digital door locks, entrance automation, identity management, and mobile access technologies. Through continuous innovation, strategic acquisitions, and a deep understanding of local markets, ASSA ABLOY delivers solutions that help billions of people experience safer and more convenient access every day. ASSA ABLOY’s competitive moat is grounded in a uniquely decentralized structure that allows decisions to be made close to the customer. Because access needs are often shaped by local building codes, cultural preferences, and infrastructure, this proximity enables the company to respond with speed and precision. While each regional division operates with deep local knowledge, the group also benefits from the scale of a global organization. This balance of local agility and global reach translates into operational efficiencies, faster innovation cycles, and customer trust built on tailored service. The company’s scale is further reinforced by the largest installed base of locks and access systems in the world. This creates high switching costs and drives a strong aftermarket business, which accounts for about two-thirds of total revenue. Unlike many capital goods companies that are heavily exposed to new construction cycles, ASSA ABLOY benefits from stable demand for upgrades, replacements, and services, which softens the impact of economic downturns. Over the years, ASSA ABLOY has acquired close to 400 companies, expanding its portfolio and capabilities across access technologies and geographies. These acquisitions have helped build a vast brand ecosystem, including Yale, HID, Kwikset, and Vingcard. Each brand carries strong recognition in its respective niche, and the group’s multi-brand strategy allows it to serve diverse customer needs without diluting the value of its global or local identities. Manufacturing and logistics are optimized through a hybrid model of local assembly and centralized production of strategic components. This structure supports fast delivery, product customization, and cost efficiency. Combined with lean processes and a disciplined focus on profitability. ASSA ABLOY’s business model is built to last. Its decentralized structure fosters customer closeness, its installed base generates recurring revenue, and its brands, innovation, and operational discipline support long-term resilience.

Management

Nico Delvaux serves as the CEO of ASSA ABLOY, a position he has held since 2018. He brings more than 30 years of international leadership experience in industrial and technology-driven companies. Before joining ASSA ABLOY, he was President and CEO of Metso Corporation, where he helped guide the company through a period of strategic realignment. Earlier in his career, he spent over two decades at the Atlas Copco Group, holding a range of senior 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 roles included leadership positions in sales, marketing, service, and acquisition integration, with assignments in Belgium, Italy, China, Canada, and the United States. He holds a Master of Engineering in Electromechanics and an executive MBA, combining deep technical expertise with strong strategic insight. At ASSA ABLOY, Nico Delvaux is recognized for his operational discipline, commitment to innovation, and focus on customer-centric growth. Under his leadership, the company has continued to expand globally, strengthen its decentralized model, and accelerate its shift toward electromechanical and digital access solutions. His leadership is marked by a long-term perspective and a clear drive to deliver sustainable value for both customers and shareholders. I believe his extensive experience, strategic clarity, and track record of execution make him well positioned to lead ASSA ABLOY into its next chapter.

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 has managed to achieve a ROIC above 10% in all years over the past decade, except for 2020, which was impacted by the pandemic - an impressive track record. ROIC dipped slightly in 2024, mainly due to the acquisition of HHI, the largest in ASSA ABLOY’s history. Given the scale of that deal, I’m not concerned that 2024 marked the lowest ROIC in the past decade, excluding the pandemic year. Like many other Swedish companies, ASSA ABLOY places more emphasis on return on capital employed (ROCE), which is the metric management actively uses. While management hasn’t communicated a specific ROCE target, they have stated that they want to see a continued positive development in the metric over time. It’s no secret that I like companies that focus on ROIC and/or ROCE. A consistently high return on capital is often a sign of a long-term compounder, and ASSA ABLOY’s track record in this regard is encouraging.

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. I don't have the growth rate from 2014 to 2015 as Finbox only provides data for the past ten years. ASSA ABLOY has managed to increase its equity every year over the past decade, with the only exception being during the pandemic, which is very encouraging. One of the reasons ASSA ABLOY continues to grow its equity is that it’s a serial acquirer, consistently adding businesses that contribute to long-term value creation. Given this strategy and the company's historical execution, I expect equity to continue growing in the years ahead, making the company increasingly valuable for its shareholders.

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. It’s not surprising that ASSA ABLOY has delivered positive free cash flow every year over the past decade. What’s particularly encouraging is that the company managed to generate its highest free cash flow ever in 2024, despite completing the largest acquisition in its history. Large acquisitions typically come with integration costs, which is also why the levered free cash flow margin declined slightly in 2024. Even so, the margin still reached its third-highest level over the past ten years, which is impressive. It’s worth noting that the company also benefited from the sale of some buildings in 2024, which had a positive effect on free cash flow for the year. ASSA ABLOY achieved a cash conversion rate of 110% in 2024, meaning that for every dollar of profit, it generated $1,10 in free cash flow. That’s a strong result and reflects disciplined operational and financial management. The company primarily uses its free cash flow to fund acquisitions and dividends, so as ASSA ABLOY continues to grow its free cash flow, shareholders can expect rising dividend payments over time. Just keep in mind that, unlike most American companies, ASSA ABLOY pays dividends only twice a year. Lastly, the free cash flow yield is currently at its highest level in more than a decade, suggesting that the shares may be trading at an attractive valuation. We’ll revisit 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 approximately 3,5 years of earnings to pay off its long-term debt. This is slightly above the three-year threshold, but it’s partly due to the HHI acquisition - the largest in the company’s history. Management has expressed confidence in the current debt level, and while it is higher than I would prefer, it doesn’t concern me. A slightly elevated debt load is something you often have to accept when investing in a serial acquirer like ASSA ABLOY.

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Risks

Macroeconomic conditions are a risk for ASSA ABLOY. The company’s performance is partly sensitive to the broader economic environment, particularly through its exposure to the residential and logistics construction markets. While the company benefits from a large aftermarket business that provides some stability, a significant portion of revenue still depends on new construction and renovation activity, especially in residential housing and commercial logistics facilities such as warehouses and distribution centers. In recent commentary, management has acknowledged a challenging market environment, marked by weak residential demand - especially in the US and Europe. Demand for garage doors, for example, a key product category in ASSA ABLOY’s portfolio, has been soft in the US, weighing on growth. The logistics vertical, which includes solutions for automated entrances and loading docks, has also seen reduced activity due to lower capital investment in warehousing and distribution infrastructure. A major driver behind this weakness is the high interest rate environment, which affects housing affordability, mortgage costs, and the willingness of individuals and businesses to invest in new construction. Management has noted that they are now less optimistic about the pace of recovery in the US and European residential markets, as central banks like the Fed and ECB have signaled that rate cuts will come slower and later than previously expected. This delay in monetary easing prolongs the slowdown in demand for access solutions across both new builds and renovation projects. ASSA ABLOY has also pointed out that even when interest rates begin to decline, the gap between current mortgage rates and those previously locked in by homeowners remains wide. As a result, many households are choosing to stay in their current homes rather than move, which has further delayed the rebound in housing-related product demand. While management remains confident in a long-term recovery - supported by structural housing needs and eventual refurbishments - they have become more cautious about the timing.

Brand and reputation risk is an important consideration for ASSA ABLOY, particularly because of its multi-brand strategy and global reach. The company operates with over 200 brands, many of which are well-known and deeply trusted in their local markets. These brands - such as Yale, HID, and Vingcard - represent decades of reliability, safety, and quality in security and access solutions. This brand trust is not only vital to customer loyalty but also to the company’s ability to command pricing power and maintain strong relationships with distributors, builders, and institutional buyers. However, this widespread brand portfolio also makes ASSA ABLOY vulnerable to reputational damage. A serious quality issue, product malfunction, or recall - especially in safety-critical categories like digital locks, entrance systems, or identity solutions - could harm customer confidence. Because many of its products are tied to security and personal safety, even isolated incidents could attract media attention or customer backlash and affect other brands in the portfolio by association. Moreover, the company’s scale and global presence expose it to reputational risks beyond product quality. Issues such as unethical behavior by suppliers, labor violations, or failures to meet environmental and safety standards in one part of the supply chain can impact the group’s overall standing. This is especially relevant given growing scrutiny from investors, regulators, and customers on ESG matters. In summary, while ASSA ABLOY’s strong brands are a core part of its competitive advantage, the company’s reputation can be fragile. Any failure to uphold its standards—whether related to product quality, ethics, or sustainability - could have an outsized impact on customer trust and long-term value creation.

Geopolitical risk is a meaningful concern for ASSA ABLOY due to its broad international footprint. The company manufactures and supplies access solutions, secure identity products, and related services in over 70 countries, with sales in more than 180 markets. This global presence offers scale and diversification but also exposes the company to a wide range of political, regulatory, and economic conditions. ASSA ABLOY is particularly sensitive to trade tensions and tariffs, especially between major economies such as the US, China, and the European Union. Changes in trade policy can raise the cost of imported components and raw materials, which may compress margins or lead to higher prices that reduce competitiveness. In some cases, geopolitical disputes can result in retaliatory tariffs or restrictions that limit market access altogether. If governments introduce country-specific tariffs or non-tariff barriers, the company may need to rethink where and how it manufactures - potentially relocating production or increasing reliance on local suppliers, both of which can be costly and disruptive. Economic sanctions, whether aimed at specific countries, companies, or individuals, pose another layer of risk. Sanctions may restrict the company’s ability to sell certain products, transfer technology, or maintain commercial relationships in affected regions. Given that ASSA ABLOY frequently works with government entities and provides critical infrastructure and secure identity solutions, staying compliant with shifting sanction frameworks is especially important. A failure to do so could result in reputational damage, fines, or legal consequences. Beyond tariffs and sanctions, local political decisions and regulatory changes can also impact the company’s operations. Customs delays, export controls, or new certification requirements can disrupt the flow of goods and materials. In some cases, changes in local laws may even require product redesigns or technical adaptations, particularly in areas like digital security and identity access management, where compliance with national standards is essential.

Reasons to invest

Favorable global trends are an important long-term growth driver for ASSA ABLOY and a key reason to consider the company as an investment. The global access solutions industry has a long track record of steady, non-cyclical growth. This growth is supported by a range of strong and durable trends that align closely with ASSA ABLOY’s core offerings. One of the most fundamental drivers is the increasing global demand for safety and security. Rising security threats, public safety concerns, and the need to protect people, buildings, and assets are pushing organizations and governments to invest more in reliable and advanced access control solutions. These concerns are especially pronounced in public spaces, infrastructure, healthcare facilities, and critical industries, where ASSA ABLOY’s expertise in trusted identity and secure entry systems is highly relevant. At the same time, there is a growing regulatory environment that requires buildings to meet stricter codes for emergency access, surveillance, and evacuation readiness. These evolving standards drive demand for compliance-ready products, particularly in complex environments like schools, hospitals, and airports. Demographic changes are also supporting long-term demand. As the global population ages, there is greater need for access systems in senior care and assisted living facilities. At the same time, millennials entering the housing market are driving demand for smart home security solutions, including digital locks and mobile access. Increased migration and population growth - particularly in emerging markets - are contributing to urbanization and a higher need for infrastructure, housing, and commercial buildings. It is estimated that 75% of the buildings required by 2050 have not yet been built, and the urban population is expected to grow by 2,5 billion people by then, according to the United Nations. ASSA ABLOY’s strong regional presence and local expertise give it the agility to respond to these shifting demographic patterns.

New product innovation is a key reason to invest in ASSA ABLOY, as it plays a central role in the company’s strategy and long-term growth. Innovation is not only critical for staying ahead of evolving security and access needs, but also for driving organic growth, expanding into new markets, and transitioning to higher-margin product categories such as electromechanical and digital solutions. In 2024 alone, ASSA ABLOY launched more than 550 new products and registered over 250 new patents. About 23% of the company’s sales during the year came from products launched in the past three years, highlighting how innovation directly contributes to revenue generation. This pace of innovation is supported by a sizeable global R&D footprint, with over 4.100 product developers and nearly 200 development sites - giving ASSA ABLOY the broadest innovation platform in the industry. A major focus has been the rapid expansion of electromechanical products and smart solutions. This category has achieved a compounded annual growth rate of about 9% over the past decade and remains the company’s fastest-growing segment. These products offer higher margins and support recurring revenue models, as they are more frequently updated and integrated with service offerings. Innovation is also enabling ASSA ABLOY to address the growing demand for efficiency, convenience, and sustainability. Digital access systems allow for remote monitoring, advanced authentication, access logging, and integration into broader smart building ecosystems. These features are particularly important for sectors like senior care, smart homes, hospitality, and critical infrastructure. As adoption rates for electromechanical solutions are still relatively low across many markets, the company sees significant opportunity to upgrade its large installed base with more flexible and secure digital products. ASSA ABLOY also sees potential in new business models emerging alongside innovation, such as the shift toward the “everything as a service” (XaaS) model and the broader trend of ecosystem-based platforms. By developing adaptable products and forging new partnerships, the company is positioning itself to capture value not only through hardware, but also through services, software, and long-term customer engagement.

Acquisitions are a central pillar of ASSA ABLOY’s long-term growth strategy and a key reason to consider the company as an investment. Since its founding in 1994, the company has completed close to 400 acquisitions globally, consistently using M&A to expand its product offering, enter new markets, gain access to innovative technologies, and strengthen its distribution capabilities. This strategy has delivered strong results over time, helping ASSA ABLOY grow both sales and profitability while broadening its presence across geographies and verticals. In 2024 alone, ASSA ABLOY completed 26 acquisitions - a record number for the company and the third consecutive year it has set a new high. These acquisitions added approximately SEK 8 billion in annualized sales, contributing 8% to acquired growth for the year. Over the past five years, the company has acquired 96 businesses, many of which have been successfully integrated and contributed to margin expansion and enhanced product capabilities. ASSA ABLOY’s acquisition strategy is not opportunistic but highly structured, with each division maintaining a five-year strategic plan that includes clearly defined acquisition targets. Acquisitions typically fall into one of four categories: expanding in existing markets, entering adjacent segments, gaining access to new technologies, or strengthening distribution and service capabilities. The company has identified a pipeline of more than 900 potential targets and actively engages in long-term relationship building with prospective sellers. A key strength of the strategy is ASSA ABLOY’s ability to realize synergies after integration. Through a decentralized operating model, local M&A teams execute deals and manage integration in close alignment with the Group’s goals. Standardized procedures and clear investment criteria ensure a disciplined approach, while strong cultural and operational alignment helps enable smooth transitions. Many of the acquired companies are already leading players in their local or regional markets, with established customer relationships and trusted brands - further enhancing ASSA ABLOY’s positioning in the global access solutions industry.

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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 14,08, which is from 2024. I have selected a projected future EPS growth rate of 10%. Finbox expects EPS to grow by 10,5% a year in the next five years. Additionally, I have selected a projected future P/E ratio of 20, 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 180,54. 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 90,27 (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 21.391, and capital expenditures were 2.284. 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 1.599 in our calculations. The tax provision was 5.272. We have 1.111 outstanding shares. Hence, the calculation will be as follows: (21.391 – 1.599 + 5.272) / 1.111 x 10 = SEK 225,60 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 17,20 and a growth rate of 10%, if you want to recoup your investment in 8 years, the Payback Time price is SEK 216,37.

Conclusion

I believe ASSA ABLOY is an intriguing company with strong management. The company has built a moat through its uniquely decentralized structure, strong brands, and global scale. It has consistently achieved a high ROIC above 10%, excluding the pandemic year, and just delivered its highest free cash flow ever in 2024. The strong free cash flow supports further acquisitions, which in turn generate even more cash - creating a reinforcing cycle that ultimately benefits shareholders through higher dividends. Macroeconomic conditions pose a risk to ASSA ABLOY due to its exposure to residential and logistics construction markets, where demand is currently being held back by high interest rates and reduced investment activity. Brand and reputation risk is also significant, given the company’s reliance on a large portfolio of trusted global and local brands, many of which are tied to safety and security. A product issue, ethical lapse, or supply chain incident could undermine trust and damage brand equity, affecting pricing power and long-term value creation. Geopolitical risk is another concern, as ASSA ABLOY’s global operations expose it to trade tensions, tariffs, sanctions, and shifting local regulations. These factors can disrupt supply chains, increase costs, limit market access, or require product adjustments - all of which can impact profitability and operational efficiency. On the positive side, favorable global trends continue to support long-term demand for ASSA ABLOY’s solutions. Rising security needs, stricter building regulations, urbanization, and demographic shifts - such as millennials entering the housing market - are all contributing to structural growth. New product innovation is also a key driver, allowing the company to expand into higher-margin, technology-driven segments like electromechanical and digital access. With a strong R&D platform and consistent product launches, innovation supports recurring revenue and positions the company well for emerging business models. Acquisitions are a core part of ASSA ABLOY’s strategy, helping it expand its product portfolio, enter new markets, and strengthen its presence across geographies and customer segments. With nearly 400 acquisitions since 1994 and a strong track record of integration and synergy realization, M&A continues to drive both top-line growth and long-term value creation. I believe that ASSA ABLOY is a great company, and buying shares at the Ten Cap price of SEK 225 would be a good long-term investment.

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