Allegion PLC

Overview Key strengths Key risks One of the largest manufacturers of mechanical and electronic security products, including door locks and access controls systems, with leading brands such as LCN, Schalge, 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 Adjusted EBITDA margins (about 23%) maintained at above-average levels 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

...We expect the company's strong operating performance to continue into 2023, amid some macroeconomic pressures, supporting debt leverage in the range of 2x. Allegion PLCs earnings support moderate deleveraging, owing to good price realization, strong volumes demand from key end-markets, and integration of newly acquired Stanley Access Technologies. We believe the publicly funded nonresidential end market will prove to be more resilient to market headwinds in 2023, supporting continued earnings growth. We expect this will likely keep adjusted debt leverage near 2.0x, barring an unanticipated jump in acquisitions or share repurchases other than those we incorporate in the base case forecast. Cost inflation will remain a headwind for Allegion and its peers in 2023. Similar to its peers, Allegion is experiencing widespread and persistent input cost inflation. In our view, the company's ability to pass through higher costs is instrumental to its operating performance. This theme was consistent...

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