Urban Growth And Smart Buildings Will Expand Security Demand

Key Takeaways

• Secular demand shifts and regulatory trends are fueling robust growth and premium pricing power, with digital innovation driving recurring revenues and sustained margin expansion.
  
• Successful acquisitions and strategic localization position the company for significant market share gains and earnings outperformance, especially in emerging and recovering residential markets.
  
• Rising adoption of integrated digital security, regulatory pressures, and reliance on acquisitions threaten ASSA ABLOY's growth, margins, and ability to maintain product and market relevance.

Catalysts

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

• Analyst consensus expects strong performance in the Americas and Global Tech, but this view may understate the scale of long-term revenue upside as ASSA ABLOY captures outsize growth from the secular transformation of commercial verticals, such as data centers and institutional projects, with robust non-residential demand and specification activity already tracking well above market averages.
  
• Analysts see improved margins from digital innovation, but with successful integrations like Level Lock and the unique Insight Mobile app platform, ASSA ABLOY could unlock a larger step-change in digital and software-led recurring revenues, driving much faster expansion in group net margins and raising group EBIT sustainably toward the top end of management's 16–17% target range.
  
• The powerful global trend toward heightened security and regulatory requirements-spanning both physical and cyber domains-positions ASSA ABLOY as an indispensable provider for governments, infrastructure, and critical industries, leading to durable, premium pricing power and consistent revenue growth across market cycles.
  
• Rapid urbanization and the rising middle class in emerging regions, coupled with ASSA ABLOY's demonstrated operational excellence and ability to localize production, create outsized opportunity for market share gains, particularly as residential markets recover in early-cut rate geographies such as Sweden and New Zealand, providing an underappreciated long-term earnings tailwind.
  
• Industry consolidation and ASSA ABLOY's continuing acquisition strategy are likely to generate outsized future earnings accretion, particularly as the company integrates undervalued technology leaders like SKIDATA and InVue, where margin improvement potential is significantly above consensus estimates and could drive substantial upward surprises in operating profit.

ASSA ABLOY Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on ASSA ABLOY compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming ASSA ABLOY's revenue will grow by 7.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 9.6% today to 11.7% in 3 years time.
• The bullish analysts expect earnings to reach SEK 22.4 billion (and earnings per share of SEK 20.18) by about July 2028, up from SEK 14.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 24.7x on those 2028 earnings, up from 23.0x today. This future PE is greater than the current PE for the GB Building industry at 23.9x.
• 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 6.69%, as per the Simply Wall St company report.

ASSA ABLOY Future Earnings Per Share Growth

Risks

• The increasing adoption of smart building technologies by big tech and integrated ecosystems may bypass traditional security hardware like that offered by ASSA ABLOY, reducing its addressable market over time and posing a threat to both top-line growth and the relevance of its product portfolio, directly impacting long-term revenues.
  
• Growing cybersecurity threats could further shift security investments from physical or electromechanical locks to software-centric access control and cloud-based solutions, which may accelerate the commoditization of ASSA ABLOY's physical products and put structural downward pressure on gross margins and future operating earnings.
  
• The company's heavy reliance on acquisition-driven growth creates risks of diminishing returns, as signaled by the M&A-related operating margin dilution of 140 basis points in Q1 and continued integration costs, which, if persisted or if synergies do not materialize as planned, could lead to further net income impairment and increase balance sheet leverage.
  
• Increasing global regulatory pressures around tariffs, privacy, data collection, and sustainability add ongoing uncertainty and increased compliance costs, as highlighted by the need to rapidly adjust pricing and supply chains in response to volatile tariffs, potentially disrupting supply stability and compressing net margins.
  
• Persistent weakness in key end markets, especially the residential segment-where management confirmed mid-single-digit negative growth in North America and ongoing declines in Greater China-threatens ASSA ABLOY's ability to drive organic revenue growth and maintain its premium product mix, with further risk posed by emerging-market urbanization favoring lower-capital-intensity security solutions that generate lower earnings per share.

Valuation

• The assumed bullish price target for ASSA ABLOY is SEK410.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of ASSA ABLOY's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• 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 SEK261.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be SEK192.0 billion, earnings will come to SEK22.4 billion, and it would be trading on a PE ratio of 24.7x, assuming you use a discount rate of 6.7%.
• Given the current share price of SEK303.3, the bullish analyst price target of SEK410.0 is 26.0% 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.