Allegion PLC

Overview Key strengths Key risks Largest manufacturer of mechanical and electronic security products, including door locks and access controls systems, with leading brands such as LCN, Schlage, and Von Duprin. Intense competition from large and well-capitalized global competitors Assa Abloy AB, Stanley Black&Decker Inc., and DormaKaba Group. Efficient global manufacturing footprint with multiple production and assembly facilities, strengthening freight cost control. Narrow security product focus, primarily concentrated in door locks, frames, closers, and related products. Above-average adjusted EBITDA margins (about 25%) through various cycles compared to peers.Ample free cash flow, exceptional liquidity, and demonstrated prudent use of leverage, with expected debt to EBITDA in the 2x area over the next two years. Some exposure to construction market cycles.

...We expect Allegion PLC's strong operating performance to continue into 2022, amid some macroeconomic pressures, supporting leverage in the 2x-3x EBITDA range. The company's earnings are solid, and we expect that to continue because of strong price realization and stable volumes from key end markets. Although inflationary and geo-political circumstances are pressuring the global economy, we expect generally stable demand for Allegion's products and strong pricing discipline. We expect this will likely keep adjusted leverage near the 2x-3x range, barring an unanticipated jump in acquisitions or share repurchases other than what we incorporate into the base-case forecast. The $900 million debt-financed acquisition of Stanley's access control business aligns with the company's strategy, businesses, and financial policy. Cost inflation and supply chain delays will continue to drag Allegion and its peers in 2022. Like its peers, widespread and persistent input cost inflation is affecting Allegion....

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