Spun off from Ingersoll Rand in 2013, , the NYSE listed Allegion group focuses specifically on security around the door and adjacent areas, offering a range of solutions under numerous brands for residential and commercial buildings around the world.
In this research note we examine Allegion based on their 2021 10K Report, released last week, as well as Q4 investor presentations and other company information across the course of a challenging year for the global economy.
Full-year 2021 net revenues of $2.87 billion increased 5.4%, compared with the prior year and were up 4.5% on an organic basis. The revenue increases were primarily driven by continued, strong end-market demand and COVID19 pandemic related pressures in the prior year, which easily offset the impact of ongoing supply-chain related revenue delays. Full-year 2021 net earnings were $483 million or $5.34 per share, compared with $314.3 million or $3.39 per sharefor the prior year. While Full-year 2021 operating margin was 18.5%, compared with 14.8% in 2020.
Allegion sells the majority of its products and solutions through distribution and retail channels, including specialty distribution, e-commerce and wholesalers. Its 10 largest customers represented approximately 25% of its total net revenues in 2021 but no single customer represented 10% or more of total net revenue last year.
Allegion’s core products still dominate revenue streams with 38% of net revenue comes from locks, key systems, and related services. Door closers, controls, and exit devices hold the second biggest share in 2021 but are expected to be surpassed by the company’s emerging digital product categories, including electronic devices, access control systems, software, and workplace technologies, which made up 21% of Allegion’s net revenue in 2021. Doors and door systems held strong with 12% of net revenue last year, with other accessories rounding out the product category divide with 6%.
The continued growth of the digital products category is due, in large part, to Allegion’s strong history of M&A since spinning off nine years ago. In 2014, the firm acquired electronic lock company SimonsVoss, then expanded on its edge computing and access control capability with the acquisition of Isonas in 2018, among other important deals over the past decade. In 2021, Allegion continued this trend with the acquisition of IoT play Yonomi, in January, a company they had made equity investment in since 2017.
Yonomi has built a strong reputation in IoT and cloud platforms since it was established in 2013. Founded by building automation and enterprise cloud computing experts, Yonomi created an agnostic smart-home ecosystem that discovers and manages devices, regardless of brand. Yonomi solutions can now be found in millions of connected products for a wide range of applications, such as door locks, vacuum cleaners, garage doors, and sound or lighting systems. Yonomi’s software essentially acts as a universal remote for the building, and represents Allegion’s first pure software acquisition.
“This acquisition is critically important because it supports our vision of seamless access. It will allow us to think of ourselves as a software business. With the software app and the data it provides, we will start to see our migration,” Vince Wenos, Allegion’s SVP and CTO, told IBJ. “We have this vision of seamless access. Some of that will be solved by software. If we want to provide that, we have to become a software company. And that goes beyond just making software. That comes down to marketing and selling software and monetizing around the data that comes from the software itself. We certainly will be viewed as a company beyond the value of a device.”
In July 2021, Allegion acquired certain assets of Astrum Benelux B.V. and privately held WorkforceIT B.V. The two acquisitions are well-established workforce management technology companies in Europe’s Benelux region (Belgium, Netherlands, and Luxembourg). Astrum Benelux B.V. is a long-standing sales, distribution and development partner for both Allegion and its leading European workforce management brand, Interflex. The acquisitions are set to increase Allegion’s workforce management portfolio and accelerate their journey towards “seamless access”, while also developing its influence in the regional market.
“While competition has heightened and profit margins have fallen, the physical security business has performed well when compared with other markets as a whole and the business still has plenty of room for further consolidation,” according to our latest Physical Security report. In 2021 our research identified a total of 38 deals, compared to only 20 the previous year, adding up to $18.89 billion. This makes January to September 2021, alone, the second highest year on record in terms of total sales, only beaten by 2017, whose figure is distorted by the Johnson Controls and Tyco merger. Allegion has played its part in these figures, and overall trends.
“Customer expectations will continue to evolve and drive the need for more ‘seamless access’ experiences,” said Vince Wenos, Senior VP & CTO of Allegion. “Tomorrow’s winners will be those companies that bring best-in-class systems together with well-designed user interfaces. Thinking beyond the technologies themselves and focusing on developing a deep understanding of customer needs will be key to fielding integrated solutions that delight end users and drive growth”
Allegion is a strong player in the global security market, specifically in its core mechanical lock business, where it faces stiff competition from Assa Abloy AB and Dormakaba Group. In their emerging digital product categories Allegion faces competition from those same firms and a range of other established companies and startups entering the blossoming market from all angles. Through resilient financial performance and strategic acquisitions Allegion is positioning itself to thrive within the rapidly evolving physical security market.
“Demand for access control bounced back strongly in 2021, with our projections based on available data to September 2021 forecasting a rise of 9.2% year on year, to $8.8Bn. Looking forward to 2026, we see the market growing at a CAGR of 6.5% for the period 2021 to 2026, eventually hitting $12Bn by the end of the period,” reads our latest security report. “Leaders in the access control market have strengthened their competitive stance through acquisition and taking on new technology challenges, as well as becoming much more professional in marketing their products and strengthening channels of distribution.”