Allegion PLC

The stable outlook on Allegion reflects our expectation that the company will maintain adjusted debt to EBITDA leverage between 2x and 3x with above-average EBITDA margins of about 25% over the next two years. Though unlikely, we would consider a negative rating action over the next two years if: Recovery in demand is slower than expected or input cost inflation is high, causing earnings to decline more than 30%, such that adjusted leverage rises to above 3x with little expectations of a rapid improvement. We do not view an upgrade as likely in the next two years. However, we may raise the ratings if: Allegion maintains debt leverage near 1.5x on a sustained basis; or The company increases its scale

...Allegion's strong cash flow generation and prudent financial policies should enable it to maintain adjusted leverage between 2x and 3x in most market conditions. We expect debt leverage to be about 2x in 2021 and 2022, despite modest deterioration in EBITDA (about 3% over 2020) and higher shareholder returns in the form of increased share repurchases and dividends. Allegion has maintained its leverage at or near 2x over the past two years, finishing at 1.7x for the trailing-12-months ended March 2021. Pandemic-related disruptions had a negative impact on the company's operating performance in 2020, particularly during the second quarter. However, it still produced adjusted free cash flow of $485 million during the year (versus $458 million in 2019) from improved working capital management and reduced capital expenditures. It also curtailed discretionary outflows, such as share repurchases, in the middle of 2020, which prevented a deterioration in credit measures. We expect the company will...

Full Report