Services is a business area in which Assa Abloy is particularly keen to expand. Installation, maintenance and repair all look ripe for consolidation given the proliferation of small players.
Importantly, unlike so many deal-hungry companies, Assa Abloy has a record of creating value for shareholders with acquisitions, as well as building scale.
A key benefit of scale for Assa Abloy is that it increases its ability to spend on research and development (R&D) in order to stay ahead of the competition. So while R&D as a percentage of sales has risen over the last decade by about a half – from 2.7pc to 4.1pc – in money terms spending is up nearly four-fold to Skr 5.7bn (£423m).
Much of the R&D, as well as acquisition activity, is focused on high-tech locks that track their own usage and are activated with minimal contact, such as through smartphones. Demand for these products is driving substantial growth at Assa Abloy’s global technology division and building valuable recurring software revenues. These new products are also encouraging existing customers to upgrade locks.
Regulation is another positive influence on long-term growth, as is urbanisation and the group’s exposure to emerging markets, which account for 14pc of sales. In emerging markets, spending per head on locks is less than 5pc of that in Western economies.
A slowdown in Chinese construction has hurt sales in recent years and marks one reason why shares in Assa Abloy trade at a relatively low multiple of forecast earnings. This is compared with its recent history of 20 times forecast earnings. That is in the bottom third of the 10-year valuation range – despite the quality of the business and plucky growth and margin targets.
The shares, which are available through most UK brokers, also offer a forecast yield of 1.9pc, although the right paperwork must be completed to minimise dividend withholding tax.
This column views the high-quality growth and decent value on offer from Assa Abloy’s shares as a very attractive combination, as do many of the world’s best fund managers.
Questor says: buy
Ticker: SE:ASSA.B
Share price: Skr 320.20
Algy Hall is editor of Citywire Elite Companies.
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