ASSA B: Quality bolt-on compounder at a decade-low valuation; initiate at Outperform

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ASSA B: Quality bolt-on compounder at a decade-low valuation; initiate at Outperform

er- EBITA, Adj 26,521.0 27,689.0 30,947.0 33,960.0

EPS, Adj Diluted 14.24 15.51 17.83 19.95 models M&A benefits. P/AEPS 23.7x 21.8x 19.0x 16.9x

Highly accretive bolt-on strategy: Two-thirds of Assa Abloy's ex-currency

sales growth since 2004 has come from M&A, with the company acting InvestmentSchörling is ABa strategicLatour isinvestora strategicholdinginvestor3.9%holdingof the9.5%shareofcapital.the share capital.Melker

as the leading consolidator in a fragmented industry. We conservatively All values in SEK unless otherwise noted. Priced as of prior trading day's market close, EST (unless otherwise noted).

estimate that ~25% of the company's current EV can be attributed to

M&A value creation, and that future bolt-on potential is realistically worth

SEK102-250 per share.

North America mix-shift lifts growth and margin potential: From 2011

to 2025 Assa's sales exposure to North America rose from 28% to 53%,

at the expense of slower-growth Europe and Asia, lifting trend growth

potential. Additionally, rapid growth in the hitherto insignificant datacentre

end market could add an extra 50bps p.a. to OSG. We forecast a 4.1%

2026-30 organic sales CAGR, vs. the 3.2% 2010-25 rate. Regional mix-shift

is also margin-accretive, supporting a 2027 adj. EBIT margin towards the

upper end of management's 16%-17% target.

Among the best FCF profiles in the sector: Assa's FCF has compounded at

10% since 2005 at an average conversion rate of 116% and with impressive

consistency. Indeed, Assa has by far the best volatility-adjusted FCF profile

among peers. Moreover, average FCF ROIC of over 11% shows that Assa is

a disciplined capital allocator and has low organic capital intensity (capex