Launch Of Kwikset Halo Select And Market Recovery In Sweden Will Improve Future Prospects

Key Takeaways

• Strategic acquisitions and new product introductions potentially boost revenue growth through expanded market presence and offerings.
  
• Operational efficiencies and R&D investments indicate potential for increased margins, earnings growth, and improved competitive positioning.
  
• Sales challenges in Asia-Pacific, interest rates, logistics uncertainty, U.S. tariffs, and acquisition integration impact ASSA ABLOY's revenue, margins, and growth strategy.

Catalysts

Provides door opening and access products, solutions, and services for the institutional, commercial, and residential markets in Europe, the Middle East, India, Africa, North and South America, Asia, and Oceania.

• ASSA ABLOY’s continued emphasis on strategic acquisitions, with a record 26 completed in the past year, suggests strong potential for revenue growth through expanded market presence and product offerings.
  
• The company's successful entry into new market segments, such as the introduction of over 550 new products including smart locks like the Kwikset Halo Select, could drive future revenue growth.
  
• Anticipated recovery in specific geographic regions, particularly in Sweden and North America, is expected to positively impact both revenue and margins as these markets rebound.
  
• Operational efficiencies, reflected in strong operating margins and substantial cash conversion rates, suggest potential for improved net margins and earnings growth.
  
• The firm’s commitment to innovation and R&D investments, coupled with development of new products, supports potential improvements in revenue and competitive positioning in emerging market segments.

ASSA ABLOY Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming ASSA ABLOY's revenue will grow by 5.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.4% today to 11.7% in 3 years time.
• Analysts expect earnings to reach SEK 20.8 billion (and earnings per share of SEK 18.71) by about March 2028, up from SEK 15.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.9x on those 2028 earnings, up from 22.3x today. This future PE is greater than the current PE for the GB Building industry at 22.7x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.71%, as per the Simply Wall St company report.

ASSA ABLOY Future Earnings Per Share Growth

Risks

• A strong sales decline in Asia-Pacific, particularly in China and Southeast Asia, could continue due to challenging market conditions, potentially affecting overall revenue growth in this key region.
  
• Interest rates in the residential market are not decreasing quickly enough, impacting demand and sales on the residential side and possibly affecting net margins.
  
• Continued uncertainty in the logistics vertical, though showing signs of recovery, could still affect industrial segment sales and, consequently, top-line revenue and earnings.
  
• Potential tariffs in the U.S. create an unpredictable environment, which could necessitate price increases that may not be fully absorbed by the market, impacting sales volumes and net margins.
  
• Acquisitions are a significant part of growth strategy, yet the strong dilution from certain acquisitions, like SKIDATA and Level Lock due to integration costs, might impact profit margins negatively if not managed effectively.

Valuation

• The analysts have a consensus price target of SEK353.722 for ASSA ABLOY based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK412.0, and the most bearish reporting a price target of just SEK290.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK177.8 billion, earnings will come to SEK20.8 billion, and it would be trading on a PE ratio of 22.9x, assuming you use a discount rate of 6.7%.
• Given the current share price of SEK314.3, the analyst price target of SEK353.72 is 11.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.