Assa Abloy: A Lock on Growth and Trust in Global Security Market

Assa Abloy, the Swedish security solutions giant, has established itself as a formidable player in the global lock and door industry. Founded in 1994 through the merger of Assa and Abloy, the company has grown to become the world's largest supplier of intelligent lock and security solutions, operating in over 70 countries and selling products in more than 190 nations.

The company's success is built on a foundation of trust and quality, crucial factors in the security sector. With a portfolio of respected brands including Yale and Mul-T-Lock, Assa Abloy has maintained consistent operating margins between 14% and 16% over the past 15 years. This pricing power, coupled with impressive growth, has attracted significant investor attention.

Between 2019 and the first quarter of 2024, Assa Abloy achieved a 53% increase in sales, translating to an average annual compound growth rate of 8.5%. This performance has not gone unnoticed by top fund managers, with 12 investors ranked in the top 3% of global equity fund managers holding shares in the company.

Assa Abloy's growth strategy heavily relies on acquisitions, having completed over 350 deals since its formation. The company's largest acquisition to date was the $4.3 billion purchase of HHI in North America, finalized last year after overcoming regulatory hurdles. These strategic moves have allowed Assa Abloy to expand into new geographical markets and product areas, with a current pipeline of over 900 potential targets.

The company's commitment to innovation is evident in its increased focus on research and development (R&D). Over the past decade, R&D spending as a percentage of sales has risen from 2.7% to 4.1%, with absolute spending nearly quadrupling to 5.7 billion Swedish kronor (£423 million). This investment has driven the development of high-tech locks, including smartphone-activated systems and products that track their own usage.

Assa Abloy's growth is further supported by regulatory trends, urbanization, and expansion in emerging markets, which currently account for 14% of sales. The company sees significant potential in these markets, where per capita spending on locks is less than 5% of that in Western economies.

Despite recent challenges, such as a slowdown in Chinese construction, Assa Abloy's shares are trading at a relatively low multiple of forecast earnings compared to its historical valuation. This presents an attractive opportunity for investors, with the company targeting 10% annual sales growth and improved operating margins of 16% to 17%.

"We are optimistic that Assa Abloy's financial future will be even brighter than its recent past. We have set a target of 10% annual sales growth through the business cycle and expect operating margins to move up to between 16% and 17%."

As Assa Abloy continues to innovate and expand, it remains well-positioned to capitalize on the growing demand for advanced security solutions in an increasingly connected world. With its strong brand portfolio, consistent financial performance, and strategic growth initiatives, the company appears poised for continued success in the global security market.