Assa Abloy: from mechanical locks to digital access

Since its foundation in 1994, Assa Abloy has completed close to 400 acquisitions and grown into a global group with approximately 63,900 employees in more than 70 countries, having completed close to 400 acquisitions. In 2025, revenue totalled SEK 152.4 billion, split across five divisions: Entrance Systems (33% of sales), Americas (29%), Global Technologies (17%), EMEIA (17%) and Asia Pacific (5%). Its portfolio of over  100 brands includes well-known names such as Yale, Kwikset, and HID Global.

The ongoing technology shift is what sets Assa Abloy apart from a traditional industrial company. Electromechanical and digital products currently account for around 32% of group sales and are growing at 8-9% annually - significantly faster than mechanical locks. Growth in software and services has been even more rapid. Since 2018, the company's SaaS (Software as a Service) revenue has increased by approximately 30% per year and now represents roughly 6% of total revenue (Assa Abloy, 2025 Annual Report). The business model is undergoing a fundamental change, from one-off hardware sales to recurring revenue from software and services tied to the existing installed base.

Another growing sector is data centres. Every data centre requires physical security, access control and monitoring. As tech companies invest hundreds of billions of USD in new AI infrastructure, this creates a growing demand for Assa Abloy’s products. Through its acquisition of Kentix, a German company, Assa Abloy has established itself in this segment, where sales have grown by approximately 75% per year since 2023 (Bloomberg, April 2026).

After a weak 2024, the company finished 2025 on a strong note. Organic growth returned to 3%, boosted by an additional 5% from 23 completed acquisitions. Even more impressive was the margin trajectory. The EBIT margin reached 16.8% in the fourth quarter, the highest level in the company's history (Assa Abloy, Q4 2025 report).

The margin expansion was achieved despite a 7% currency headwind during 2025. The strong US dollar and euro against the Swedish krona weighed on reported growth, but the underlying operational performance remains robust. The gross margin improved by 1.2 percentage points to 43.0%. This improvement was primarily driven by digital products, accounting for an increasing share of sales. These carry higher margins than traditional mechanical locks. Cash generation remained strong, with a cash conversion rate of 106%.

Approximately 70% of Assa Abloy's revenue comes from the aftermarket, which involves recurring revenue from maintenance, replacement, and upgrades. When a hotel replaces its key cards, an office upgrades its access system, or a homeowner installs a new lock, it is highly likely that the product is from Assa Abloy. This makes the company less dependent on new construction than one might expect from a building-related company. All the locks and systems already installed act as a buffer during weaker construction cycles.

Assa Abloy stands alone in a fragmented global market for locks and access solutions . The company holds an estimated 20% market share, which is four to five times greater than that of its closest pure-play competitor, Allegion. Swiss-based dormakaba and other players are significantly smaller. Assa Abloy also invests more in research and development than its two nearest competitors combined (Bloomberg, April 2026), an advantage that becomes particularly valuable as the industry moves towards more software-based and digital solutions.

Barriers to entry are high. A new entrant must first navigate years of testing against fire and safety standards, which also vary between countries. On top of that, long-term relationships with locksmiths, builders and architects are needed as they ultimately determine which products get installed. All of this takes decades to build.

Tech giants such as Amazon, Google and Apple have a major presence in the smart home ecosystem, yet they do not build their own locks. Instead, they provide platforms such as HomeKit, Google Home and Alexa, where locks from various manufacturers can be integrated. Assa Abloy's brands Yale and Kwikset, work with all of the major platforms. This effectively turns the tech giants into distribution channels rather than competitors.

Several factors are currently supporting the Assa Abloy share price. The stock is trading around SEK 375, which is down from its all-time high of SEK 396.90 in February. In March, analyst consensus points to an average target price of approximately SEK 398 to 408. Barclays upgraded the stock to Overweight with a target price of SEK 466, noting that Assa Abloy was trading at a discount to European industrial indices for the first time in five years.

The structural drivers are clear. Smart lock penetration remains low in the company's most important markets. In the US it stands at 10 to 15%, in Scandinavia 5 to 10%, and in the rest of Europe below 5%. Some analysts believe consensus underestimates the company's earnings growth, with an expected earnings CAGR of approximately 9% through 2028 (Bloomberg, April 2026).

Growth is also supported by several factors: the HHI acquisition (Kwikset), which has strengthened the company's position in the US residential market; data centres as a new growth segment; and a stated target of 5% annual acquisition-driven growth from a pipeline of over 900 identified targets.

There are also signs of a turnaround in the construction sector. European building permits rose by 26% during 2025, and global construction investment is expected to grow by 3.4% in 2026. ECB rate cuts should gradually support a recovery in the EMEIA region.

The most obvious risk is the impact of currency exchange rates. Management expects a 13% FX headwind in Q1 2026 and 8% for the full year (Assa Abloy, Q4 2025 report). These figures will negatively impact reported sales and earnings, even if the underlying trend is positive, and may generate negative headlines.

There are also structural questions about the acquisition strategy. When Assa Abloy purchased the US-based HHI (owner of brands such as Kwikset and Baldwin) in 2023, the US Department of Justice required the company to divest parts of the business for USD 800 million as a condition for approving the deal. This suggests that further large-scale acquisitions within the core business may be difficult to approve, thereby limiting one of the company's primarily growth strategies. China's housing market also continues to negatively impact the Asia Pacific division, which declined 3% organically during 2025.

The valuation offers limited discount. The stock trades at approximately 26 times trailing twelve-month earnings and 22 times expected 2026 earnings, which is in line with the historical average. For a company growing organically in the single digits, this is a multiple that requires the digital transformation to keep delivering. Additionally, smart locks generally carry lower margins than commercial products, and pricing pressure from the tech giants' smart home platforms poses a challenge in the residential segment (Bloomberg, April 2026).

On April 28, Assa Abloy will release its Q1 2026 report. Reported growth will appear weak due to currency headwinds, but the underlying trend is more important. Three things are worth watching closely: First, can organic growth hold at 3 to 4%, as it did at the end of 2025? Second. are margins excluding currency effects within the company's target of 16 to 17%? And how fast is software and services revenue continuing to grow?

Assa Abloy is now available as an underlying in Vontobel's range of Bull & Bear certificates. This allows investors to take a leveraged position on the stock, for both upside and downside.