Assa Abloy Posts Strong Demand and Improving Cash Flow Generation in the Second Quarter

Demand for Assa Abloy's products remained strong in the second quarter and first half with revenue up 13% and 14%, respectively. A key driver for our thesis on the stock is the takeup rate of electromechanical locks globally. Electromechanical lock sales grew 18% organically, above the roughly 12% prepandemic pace achieved during 2015-19. Margins this year should be supported by price increases mitigating inflationary pressures. At the group level the EBIT margin declined by 20 basis points year over year to 15% in the second quarter. However, the first-half margin was still up by 10 basis points and ongoing price increases should add more margin support in second-half 2022. Supply chain issues continued in the second quarter, and many companies in our coverage have been building inventories as a defense against supply chain bottlenecks. Therefore, it was good that Assa Abloy managed to bring down working capital and inventory needs in the second quarter. This supported operational cash flow growth of 4% year over year, a nice turnaround from the 65% decline in the first quarter. We maintain our wide moat rating. Shares look attractive relative to our SEK 300 fair value estimate.