Digital Partnerships And Manufacturing Savings Will Expand Global Markets

Key Takeaways

• Strong sales growth in the Americas and Global Tech, strategic collaborations, and digital expansion point to significant potential for increased revenue.
  
• Active acquisitions and operational efficiencies via the MFP 10 Program are expected to enhance long-term revenue growth and improve margins.
  
• Economic and political uncertainties, declining sales in Asia Pacific, and residential market challenges could hinder revenue growth and strain operating margins.

Catalysts

Provides door opening and access products for the institutional, commercial, and residential markets.

• ASSA ABLOY experienced strong sales growth in key regions such as the Americas and Global Tech, with potential for continued robust performance in these areas. This is likely to impact future revenue positively.
  
• The highlight of the strategic collaboration between Level Lock and Baldwin to integrate digital locks into residential and commercial applications suggests opportunities for innovation and market expansion, which could drive incremental revenue growth.
  
• The launch of the Insight Mobile app is expected to enhance service offerings and expand digital capabilities, potentially improving net margins through higher-margin service revenue.
  
• With the initiation of the MFP 10 Manufacturing Footprint Program, the company anticipates SEK 1 billion in savings by the end of 2027, which could improve future net margins and operating efficiencies.
  
• ASSA ABLOY’s active acquisition strategy, with completed acquisitions expected to contribute around SEK 3.6 billion in annualized sales, is likely to support long-term revenue growth and improve earnings as integration and synergies are realized.

ASSA ABLOY Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming ASSA ABLOY's revenue will grow by 5.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.6% today to 11.7% in 3 years time.
• Analysts expect earnings to reach SEK 20.7 billion (and earnings per share of SEK 18.69) by about May 2028, up from SEK 14.6 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as SEK18.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.6x on those 2028 earnings, down from 22.1x today. This future PE is greater than the current PE for the GB Building industry at 21.3x.
• 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 6.44%, as per the Simply Wall St company report.

ASSA ABLOY Future Earnings Per Share Growth

Risks

• Economic and political uncertainties, especially in key markets like the U.S., may negatively impact consumer confidence, affecting residential revenue and overall sales growth.
  
• Declining sales in the Asia Pacific region, particularly in Greater China, could continue to impact revenue negatively if market conditions do not improve.
  
• Residential market challenges in regions like the U.S. and Europe due to high-interest rates could constrain growth in net margins and revenues from the residential segment.
  
• Operating margins are under pressure due to ongoing dilution effects from acquisitions, integration costs, and potential economic slowdowns, which could weaken net earnings.
  
• Tariff uncertainties and potential pricing adjustments in response to tariff changes, particularly regarding imports from China, might lead to increased costs and disrupt net earnings and revenue stability.

Valuation

• The analysts have a consensus price target of SEK334.556 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 SEK410.0, and the most bearish reporting a price target of just SEK266.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK177.0 billion, earnings will come to SEK20.7 billion, and it would be trading on a PE ratio of 21.6x, assuming you use a discount rate of 6.4%.
• Given the current share price of SEK291.6, the analyst price target of SEK334.56 is 12.8% 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.