Morningstar | Impressive 2Q for Assa Abloy, but Market Is Wise to Outperformance; Shares Fully Valued
Wide-moat Assa Abloy's shares are up 40% year to date, so despite another impressive quarter with solid organic growth (up 3%) and EBIT margin expansion (20 basis points), we think the market has more than priced in the company's standout performance. Our 2019 and 2020 forecasts remain just above the consensus mean, and we intend to maintain our SEK 181 fair value estimate.Performance in the second quarter was led by the company's highest-margin segments, Americas and global technologies. Americas posted 6% organic growth with a 21% EBIT margin, well above the 16% group average. Smart locks (digital) and electromechanical locks continue to see good demand there. Global technologies increased organic sales by 5% with an 18% EBIT margin, down 120 basis points year over year due to higher research and development spending and negative operating leverage from expansion into new verticals.
Since 2010, the company's EBIT has doubled. Organic revenue growth has been steady in the low single digits through the cycle. Including acquisitions, the company's top line has expanded by 10% annually for the past decade. The company's locks benefit from a long-term trend towards conversion from mechanical locks, still prevalent globally, to electromechanical locks, which increase building security as well as tracking of building visitors.
ASSA ABLOY provides a range of door opening solutions. Co. is organized into five divisions. Europe, Middle East and Africa division, Americas (North and South America) division and Asia Pacific (Asia, Australia and New Zealand) division manufacture and sell mechanical and electromechanical locks, security doors and hardware in their respective geographical markets. Global Technologies division operates worldwide in the product areas of access control systems, secure card issuance, identification technology and hotel locks. Entrance Systems division is a global supplier of entrance automation products and service.
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