Assa Abloy Minor model adjustments

We have updated our estimates by fine-tuning our assumptions for Q3 to reflect market trends during the quarter. For Q3, we forecast sales of SEK23.9bn (1% below consensus) and an adj. EBIT margin of 15.1% (consensus: 15.4%), resulting in adj. EBIT of SEK3,603m (3% below consensus). Our estimate changes have not affected our 2022–2023e. We do not consider these changes to be material and we have not changed our HOLD recommendation. We reiterate our SEK300 target price.

Assa Abloy (Hold, TP: SEK300.00) - Assa Brassa

Following Assa Abloy’s announcement that it plans to acquire HHI, we have raised our adj. EPS by 8% for 2022e and by 10% for 2023e. We believe the deal logic is strong, with HHI covering a significant portion of the US residential market, which has not previously been part of Assa Abloy’s portfolio. We reiterate our HOLD and have raised our target price to SEK300 (275).

Assa Abloy (Hold, TP: SEK275.00) - Decent Q2, but still a HOLD

We have made limited changes to our estimates following the Q2 report. Although Assa Abloy screens well as a reopening outperformer, at a 2022e EV/EBIT of >19x, we see this as already reflected, and our estimates are broadly in line with consensus. We reiterate our HOLD, but have raised our target price to SEK275 (270).

Assa Abloy (Hold, TP: SEK270.00) - Locked in at fair value

We have downgraded Assa Abloy to HOLD (BUY) as the share price has closed in on our unchanged SEK270 target price, while we see no just reason to increase our estimates and see the valuation as fair at a 2022e EV/EBIT of c20x. For Q2, we estimate sales of SEK23.1bn and an adj. EBIT margin of 15.3% (0% and +30bp versus consensus). Our estimates for 2021–2023 are broadly unchanged and in line with consensus.

Go West…

Sector profitability is set to be strong in 2021 but mounting supply chain constraints are an increasing concern. We favour US exposure (Assa Abloy, Hexpol, Dometic), mining equipment (Epiroc, Metso Outotec) and construction. We recently upgraded Alfa Laval and Hexpol (from HOLD to BUY) and downgraded Volvo and ABB (from BUY to HOLD).

Assa Abloy (Buy, TP: SEK260.00) - Recovery case materialising

We believe Assa Abloy’s outlook commentary, which turned more positive with its Q4 report, has started to materialise. US mobility trends have increased significantly since the beginning of March and should drive a recovery in replacement demand and emphasise Assa Abloy as a relative beneficiary of the vaccine and a re-opening outperformer. We reiterate our BUY and have raised our target price to SEK260 (250) after lifting our 2021–2023e adj. EBIT by 1–2%.

Northern Lights

Assa Abloy (Buy, TP: SEK250.00) - Possible inflection point ahead

As Assa Abloy’s outlook commentary turned more positive with the Q4 report, we believe sentiment in the stock, which has underperformed the sector over the past year, could be at an inflection point. We reiterate our BUY and have raised our target price to SEK250 (235) after lifting our 2021–2022e adj. EBIT by 1–2%.

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Green is good

Average alignment with the EU Taxonomy that defines ‘sustainable activities’ could be as low as 11% for the sector. Hexagon, ABB and Alfa Laval screen best, while ‘strong’ ESG cases like Nibe and Beijer Ref’s alignments are surprisingly low. We also see a mismatch between companies’ taxonomy alignment and ESG funds’ positioning, which could have a major impact on flows in certain stocks. For 2021, our top sector picks are Autoliv, Dometic, Epiroc, Metso Outotec, Hexagon and SKF, as we favour aut...

Assa Abloy (Buy, TP: SEK235.00) - Slight setback to recovery

We believe more Covid-19-related lockdowns will be a slight setback to Assa Abloy’s recovery in Q4 (we are 7% below consensus on adj. EBIT). However, we still see good risk/reward into 2021, and reiterate our BUY, but have lowered our target price to SEK235 (240) after cutting our 2020–2022e adj. EBIT by 2–3% (mainly FX).

Assa Abloy (Buy, TP: SEK240.00) - Recovery not priced in

We believe investor concerns about Q4 and 2021 that pressured the shares following the strong Q3 report are overdone. We expect a steady, gradual recovery in volumes and EBIT margins, but have trimmed our 2021–2022e adj. EBIT by c2%, mainly due to FX. We reiterate our BUY and SEK240 target price.

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The new normal

Nordic Capital Goods (, ) - (69 pages)

Assa Abloy (Buy, TP: SEK240.00) - Margins starting to recover

Assa Abloy has been the sector’s laggard in H1 with poor cost control and negative outlook commentary. We expect things to turn for the better in Q3 (results due at 08:00 CET on 21 October) with a gradual recovery in demand resulting in increased volumes, which coupled with better cost control should result in significantly improved margins (we are 9% above consensus on Q3e adj. EBIT). We reiterate our BUY and have raised our target price to SEK240 (220).

Northern Lights

Assa Abloy (Buy, TP: SEK220.00) - Data indicates continued recovery

Mobility and Google search data indicates demand has continued to recover in July and August, implying potential upside to consensus. Historically, the trough in leading construction indicators has provided a good entry point into Assa Abloy; however, we believe the indices’ current levels will challenge 2021e growth. At a 12-month forward EV/EBIT of c18x, the stock is trading in line with the sector, its lowest relative valuation in nine years. We reiterate our BUY and SEK220 target price.

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Assa Abloy (Buy, TP: SEK220.00) - Set to deliver when demand stabilise...

With a double-digit sales decline in June, we believe management’s comment of a gradual improvement going forward supports our view of -5% organic growth in H2e and the adj. EBIT margin returning to pre-Covid-19 levels by 2021e. We see good risk/reward as the stock is trading at a 2022e EV/EBIT of 15.5x (a 10% discount to its NTM 5-year average). We reiterate our BUY and SEK220 target price.

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