Morning Note: Market News and a positive update from Assa Abloy

Market News

Gold trades at $4,305 an ounce but remains close to the fresh record set yesterday, supported by its safe-haven appeal and expectations of US rate cuts. The ongoing US government shutdown continued to fuel uncertainty, though White House economic adviser Kevin Hassett suggested the impasse could be resolved this week. 10-year Treasury yields remain just below 4%.

However, broader risk sentiment on US/China relations appears to be turning more positive compared with late last week with both countries making fresh attempts to cool tensions. Treasury Secretary Bessent is to meet Vice Premier He Lifeng in Malaysia this week. Bessent claimed situation has de-escalated. Trump also conceded 100% tariffs from 1 November are not sustainable

US equities rose last night – S&P 500 (+1.1%); Nasdaq (+1.4%) – while in Asia this morning, markets were also firm: Nikkei 225 (+0.3%); Hang Seng (+1.3%); Shanghai Composite (+1.3%). Sanae Takaichi won a key vote to become Japan’s new PM. Bank of Japan officials see no urgency to hike rates next week, people familiar said.

The FTSE 100 is currently 0.3% higher at 9,436, while Sterling trades at $1.3385 and €1.1510. Data from EY showed number of UK public companies citing weak consumer confidence as a reason for profit warnings hitting three-year high. Rightmove said the housing market has slowed due to uncertainty related to property tax reforms in November budget.

Brent Crude remains subdued at $61 a barrel as growing concerns over a global oversupply and uncertainties surrounding US-China trade negotiations kept markets on edge.

Source: Bloomberg

Company News

Assa Abloy has today announced its Q3 results which were slightly better than market expectations. Against a backdrop of mixed market conditions, the group’s decentralised structure and agile approach continues to be a great advantage, with the highest margin for a single quarter in ten years. Ahead of this morning’s analysts’ call, the shares have been marked up 3% in early trading.

Assa Abloy is the global leader in access solutions to physical and digital places, with a portfolio of well-known global and local brands, such as Yale, Union, HID, and Lockwood. Products include doors, sensors, locks, alarms, fencing, gates, and identity systems. The key long-term drivers of the $100bn industry are increased demand for safety and security; growing urbanisation; increased emerging market wealth; the shift to new digital and electronic technologies; the development of sustainable buildings to meet climate change objectives; and changing market regulations. Furthermore, one of the legacies of the pandemic have been a shift towards touchless (hygienic) activation points, automated doors, and location services, which also provide recurring revenue from licenses and software. As the brand leader in most markets, with a large installed base, strong pricing power, and strong distribution channels, we believe Assa Abloy is well placed to take advantage of these trends.

The long-term financial target is to generate annual sales growth of 10%, half organically and half from acquisitions, and to earn an operating margin of 16%-17% over the business cycle. The aim is to actively upgrade the installed base, generate more recurring revenue, increase service penetration, and expand exposure to emerging markets. The group is on track to exceed its target to generate SEK 25bn of profit from SEK 150bn of sales by 2026, with new 2028 targets – SEK 35bn of profit from SEK 220bn of sales – outlined at the last Investor Day.

The group has previously said it needs to generate organic top-line growth of 3% to offset inflation and drive the margin forward, although clearly more was needed to recoup the elevated raw material cost increases experienced over the last couple of years. The group has a strong track record of innovation – 550 new products were launched in 2024 – and aims to generate 25% of sales from products launched in the last three years.

The company also has a very strong track record on cost control. A new Manufacturing Footprint Programme, the group’s tenth, was launched during earlier in the year. The expected restructuring cost is SEK 1.3bn, with a pay-back time of less than two years. The programme is expected to generate annual savings of about SEK 1bn (equivalent to 60 basis points of margin) and comprises almost 60 projects and, similarly to previous programmes, includes factory, warehouse and office closures across all divisions.

During the third quarter of 2025, the macroeconomic environment remained mixed. However, strong exposure to the aftermarket continues to demonstrate its value, while a decentralised structure and agile approach continues to be a great advantage.

Net sales rose by 2% to SEK 38.1bn, in line with market forecast. In organic terms, which strips out the impact of acquisitions & disposals (+5%) and currency (-6%), sales rose by 3%. This was in line with the previous quarter and made up of 1% volume and 2% price growth. The company has pushed through tariff-related price increases.

Despite market uncertainty, the company is seeing strong demand for upgrades to electromechanical and digital solutions. Sales are up 12% year to date, with growth driven by demographic changes, with a digital native younger generation and an aging generation in need of care, are accelerating the need for more convenient, reliable, and efficient electromechanical and digital solutions.

By business division, Entrance Systems (a separate global division) rose 4% in organic terms, with growth across all segments. The Perimeter Security and Pedestrian segments posted the strongest growth, and the Industrial segment returned to growth as loading dock orders were translated into sales. Global Technologies (also a separate global division) reported good organic growth of 3%, with good contribution from both Global Solutions and HID.

In the geographical divisions, Americas also achieved good organic growth of 3%, led by the North America Non-Residential segment. The North America Residential segment declined in the quarter as high interest rates continue to hold back demand for new construction. The EMEIA region delivered good organic sales growth of 4%, driven by strong growth in the Nordics and Central Europe. The only region to experience a decline (-4%) was Asia Pacific, with good growth across most regions being more than offset by significant sales declines in China. 

Operating income increased by 3% to SEK 6.43bn, a touch better than the market forecast of SEK 6.37bn. The operating margin rose from 16.7% to 16.8%, the highest margin for a single quarter in ten years. The margin was supported by excellent operating leverage of 41% driven by ongoing Manufacturing Footprint Programs savings, tariff mitigation activities, and higher growth in margin-accretive parts of the business. EPS rose by 3% to SEK 3.73.

Operating cash flow rose by 10% to SEK 6.97bn, with a corresponding cash conversion of 125%. The group’s financial position remains robust, with net debt to EBITDA at 2.2x, versus 2.3x in the previous quarter. Looking forward, gearing is expected to fall rapidly thanks to strong free cash flow generation.

M&A will continue to be a core driver of growth, with over 900 potential acquisition targets identified globally. The focus is on acquiring new customers in the core business, extending the core offering, access new technologies to deepen the group’s competitive position, and increased service capacity. However, there is some concern that recent M&A has been skewed towards lower value-added segments (e.g. DIY, window and door hardware components, fencing products, gates, padlocks, cylinders, etc). Although these acquisitions fit the purpose of growing earnings at lower multiples than the group average, they also dilute the group’s exposure to the fast-growing and structurally more attractive electromechanical and mobile segments, potentially posing a risk to long-term valuation multiples.

The 2023 purchase of HHI for $4.3bn filled a strategic gap in its US residential business. Although that market remains subdued, the business is performing well, with integration proceeding to plan and the company is confident it will be able to realise the five-year synergy target of $100m. Elsewhere, M&A activity remained buoyant with five deals in Q3 with combined annual sales of about SEK 500m. The pipeline remains strong, and the group still plans to make its usual 15-20 acquisitions per year. Earlier in the year, the group competed the sale of its underperforming Citizen ID business.

Regarding potential tariffs, the company has previously said that 70% of US sales are produced from outside the US, including 15% elsewhere in North America and 10% from China, some of which is exempt or could be rerouted. To offset the additional costs, the group estimates it needs to increase prices by 4%-5% in the US. This is in addition to the 1.0%-1.5% price rises previously anticipated at the group level.

Assa Abloy doesn’t usually provide guidance but highlights that, despite prevailing market conditions, the company is on a trajectory to deliver another strong year. The risk to this optimism is driven by a combination of interest rates, labour shortages, and tariffs. Management is dedicated to mitigating any impact from potentially negative changes in demand, through local agility and focus on cost-control. Assa has previously said that during both the global financial crisis in 2008/09 and the Covid-19 pandemic, its decentralised operational model and agile cost base provided flexibility. In addition, the group’s large exposure to after-market service and its structural pricing power leaves the business better positioned to navigate through these uncertain times.

Source: Bloomberg