Executive Summary

Investment Thesis (3 Sentences)

Schindler is one of the world's leading elevator and escalator manufacturers with a dominant global service business that generates recurring revenue and exceptional returns on capital (~60% ROIC). The company benefits from a structural shift toward modernization and maintenance services as the global installed base of elevators grows 4-5% annually, providing predictable earnings growth. However, at a P/E of 32x and with China new installation markets in secular decline, the current valuation fully prices in the quality, offering limited margin of safety.

Key Metrics Dashboard

Decision & Sizing

RECOMMENDATION: WAIT

Current price of CHF 281 offers insufficient margin of safety for a value investor. The business quality is excellent (wide moat, high ROIC, strong management), but the valuation requires near-perfect execution of margin expansion plans.

Entry Price Targets:

• Strong Buy: CHF 195 (30% discount to fair value)
• Accumulate: CHF 224 (20% discount to fair value)
• Fair Value: CHF 280

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PHASE 0: Opportunity Identification (Klarman)

Why Does This Opportunity Exist?

Short Answer: It doesn't - this is a high-quality company trading at a fair-to-full valuation.

Market Perception:

• Schindler is well-covered by analysts (consensus estimates available)
• No forced selling or institutional constraints
• No complexity or stigma - straightforward industrial business
• China weakness is known and priced in

Potential Mispricing Sources:

1. Underappreciated margin expansion potential: Management targeting 13% EBIT margin by 2027 vs 11.3% in 2024. If achieved, earnings could grow faster than expected.
2. Service business undervaluation: ~50%+ of revenue is recurring service with 20%+ margins. The market may not fully appreciate this cash cow.
3. China oversold? The market may have over-discounted China exposure (25% of revenue but declining NI).

Assessment: This is not a classic value opportunity. The stock is fairly priced for its quality. We would need a 20-30% pullback to have adequate margin of safety.

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PHASE 1: Risk Analysis (Inversion Thinking)

"All I want to know is where I'm going to die, so I'll never go there." - Munger

1. Technological Disruption Risk

Risk: Could elevators become obsolete or radically disrupted?

Analysis:

• Elevators are essential infrastructure - no substitute for vertical transportation
• Technology changes are incremental (smart elevators, IoT, predictive maintenance)
• Schindler invests in digitalization (BuildingMinds platform)
• Main tech risk is commoditization of control systems by Asian competitors

Probability: 5% Impact: -30% (if margins compress due to tech commoditization) Expected Loss: 1.5%

2. China Market Decline

Risk: China new installation market in structural decline as property crisis deepens.

Analysis:

• China NI market down double-digits in 2024, expected to continue declining
• Schindler already restructuring China operations
• China ~25% of APAC revenue (roughly 6% of total)
• Pivot to modernization and service helps offset
• Other Chinese competitors (KONE, OTIS) face same headwinds

Probability: 80% (decline continues for 2-3 years) Impact: -5% to revenue, -2% to EBIT Expected Loss: Limited, already being managed

3. Pricing/Margin Compression

Risk: Failure to achieve 13% EBIT margin target by 2027.

Analysis:

• Current margin 11.3%, target 13% (+170bps)
• Requires: field efficiency, supply chain optimization, SG&A reduction
• Wage inflation a persistent headwind
• Restructuring costs ongoing
• 2025 guidance is only 12% margin

Probability: 40% (margin stalls at 11-12%) Impact: -15% to stock price (multiple compression) Expected Loss: 6%

4. Competitive Dynamics

Risk: Loss of market share to OTIS, KONE, or Asian competitors.

Analysis:

• Global oligopoly: OTIS (17%), KONE (13%), Schindler (11%), thyssenKrupp
• Chinese players (Shenyang Brilliant, Canny) gaining in value segment
• Schindler's service moat is strong (installed base creates recurring revenue)
• Modernization expertise is a differentiator

Probability: 20% Impact: -10% Expected Loss: 2%

5. Currency Risk

Risk: Swiss Franc appreciation erodes reported earnings.

Analysis:

• ~95% of revenue outside Switzerland
• Strong CHF vs EUR/USD historically
• 2024: Revenue -2.2% in CHF but +0.8% in local currency
• Natural hedge: costs also in local currencies

Probability: 60% (CHF remains strong) Impact: -3% to reported earnings translation Expected Loss: 1.8%

Inversion Summary

How Could This Investment Lose 50%+ Permanently?

1. Global real estate collapse causing multi-year construction freeze
2. Major technological disruption (highly unlikely)
3. Massive fraud or governance scandal (no signs)
4. Permanently impaired margins in China

Bear Case (3 Sentences): Schindler is a mature business in a low-growth industry, trading at 32x earnings with limited margin expansion potential beyond 2027. China exposure drags on results for years, and the service business growth rate decelerates as the installed base matures in developed markets. The dividend is the only return, and multiple compression to 20x (peer average) would mean a 35% decline.

Sell Triggers (Define Before Buying):

1. EBIT margin fails to reach 12% by end of 2025
2. Service portfolio growth declines below 3% for two consecutive years
3. CEO/CFO unexplained departure
4. Dividend cut

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PHASE 2: Financial Analysis

ROE Decomposition (DuPont Analysis)

Analysis: Improving ROE driven by margin expansion. Low leverage (mostly operating liabilities, not debt). Asset turnover declining slightly as balance sheet grows.

Owner Earnings Calculation

Owner Earnings (2024):
Net Profit:                    CHF 1,010M
+ D&A:                         CHF   330M
- Maintenance CapEx (~80%):    CHF   (86M)  [Total CapEx 107M]
- Working Capital Change:      CHF  (246M)  [Actually improved]
= Owner Earnings:              CHF 1,254M   (approximately)

Owner Earnings per Share: CHF 11.67

Valuation Trinity

1. Liquidation Value (Floor)

This is a capital-light business with minimal hard assets. Liquidation value is not meaningful.

2. DCF Valuation (Conservative)

Assumptions:

• Owner Earnings: CHF 1,250M
• Growth Rate (10 years): 4% (service portfolio growth)
• Terminal Growth: 2%
• Discount Rate: 9% (Swiss quality company)

Year 1-10 Present Value:  CHF 11,400M
Terminal Value PV:        CHF 17,600M
Total Enterprise Value:   CHF 29,000M
Less: Debt:               CHF   (319M)
Add: Cash:                CHF  2,599M
Equity Value:             CHF 31,280M
Per Share:                CHF 291

Fair Value (DCF): CHF 291

3. Owner Earnings Multiple

At current price of CHF 281, the market is paying 24x owner earnings.

4. Relative Valuation

Schindler trades at a slight premium to peers, justified by higher ROIC and stronger balance sheet.

Margin of Safety Calculation

Current Margin of Safety: ~0% to -15%

Required MOS for Investment: 20-30%

Conclusion: No margin of safety at current prices. Need CHF 220-230 for accumulation, CHF 195 for strong buy.

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PHASE 3: Moat Analysis

Moat Sources Identified

1. Switching Costs (HIGH)

• Measurement: Lifetime Value of Installed Unit
• Once Schindler installs an elevator, they have 20-30 year service relationship
• Switching elevators requires major building disruption
• Service contracts renewed 90%+ of time
• Economic Value: Service revenue is 50%+ of total with higher margins

2. Network Effects / Installed Base (MEDIUM)

• Measurement: Installed base growth rate
• Global installed base growing 4-5% annually
• Each unit = recurring service revenue for decades
• More units = more data for predictive maintenance AI
• Duration: Permanent advantage, grows over time

3. Scale Advantages (MEDIUM)

• Measurement: Market share stability, procurement leverage
• Top 4 players control 50%+ of global market
• Scale in components, software, field technicians
• Regional density matters for service efficiency
• Economic Value: 2-3% cost advantage vs smaller players

4. Regulatory Moat (LOW-MEDIUM)

• Measurement: Certification requirements
• Elevators require safety certifications
• Trained technicians, spare parts availability
• Building code compliance
• Duration: Provides barrier to entry but not differentiation

Moat Durability Assessment

Moat Trajectory

Question: Will this moat be wider or narrower in 10 years?

Answer: Wider - The service business grows as installed base expands. Digitalization and predictive maintenance add value. Chinese competitors unlikely to match global service capabilities.

Moat Rating: WIDE (Service business) / NARROW (New Installations)

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PHASE 4: Management & Incentive Analysis

Management Team

• Chairman: Silvio Napoli (long tenure, family representative)
• CEO: Paolo Compagna
• CFO: Carla De Geyseleer

Ownership Structure

• Schindler and Bonnard families control ~70% voting rights
• Management interests aligned with long-term shareholders
• Family ownership since 1874 (150 years)

Capital Allocation Track Record (5 Years)

Assessment: Conservative capital allocation. Perhaps too much cash accumulation. Could return more to shareholders, but financial strength provides resilience.

Insider Activity

• Family holdings stable
• No significant recent purchases or sales by executives

Incentive Alignment

Management compensation tied to:

• Revenue growth
• EBIT margin improvement
• ROIC
• Sustainability metrics

Munger's Question: "If I were management with these incentives, what would I do?"

• Focus on profitable growth, especially in service
• Continue margin improvement programs
• Avoid risky M&A
• This aligns with stated strategy

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PHASE 5: Catalyst Analysis

Potential Catalysts

No Catalyst Assessment

If no catalyst materializes, Schindler is a slow compounder:

• 3-4% revenue growth + 1-2% margin improvement + 2% dividend = 6-8% annual return
• At current valuation, this may underperform the market
• Requires larger margin of safety (30%+) without clear catalyst

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PHASE 6: Decision Synthesis

Valuation Summary

Price Targets

Expected Return Scenarios

Annualized Expected Return: ~4%

This is below the hurdle rate for a stock at fair value.

Position Sizing

At current prices: 0% (WAIT)

At CHF 224 (Accumulate): 2% position At CHF 195 (Strong Buy): 4% position

Monitoring Metrics

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Graham's Criteria Check

Graham Score: 5/7 - Quality company at expensive valuation

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Megatrend Resilience

Total Score: +4 | Tier 2 "Resilient"

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Final Recommendation

+---------------------------------------------------------------+
|                   INVESTMENT RECOMMENDATION                    |
+---------------------------------------------------------------+
| Company: Schindler Holding AG    Ticker: SCHN.SW              |
| Current Price: CHF 281           Date: December 25, 2025      |
+---------------------------------------------------------------+
| VALUATION SUMMARY                                              |
| +-------------------------+-----------+---------------------+  |
| | Method                  | Value     | vs Current Price    |  |
| +-------------------------+-----------+---------------------+  |
| | Graham Number           | N/A       | Not applicable      |  |
| | Net Current Asset Value | CHF 12.50 | N/A (growth stock)  |  |
| | DCF (Conservative)      | CHF 291   | 3% upside           |  |
| | Owner Earnings (20x)    | CHF 233   | -17% downside       |  |
| | Owner Earnings (25x)    | CHF 292   | 4% upside           |  |
| +-------------------------+-----------+---------------------+  |
|                                                                |
| INTRINSIC VALUE ESTIMATE: CHF 280                              |
| MARGIN OF SAFETY: ~0%                                          |
+---------------------------------------------------------------+
| RECOMMENDATION:  [ ] BUY  [ ] HOLD  [ ] SELL  [X] WAIT        |
+---------------------------------------------------------------+
| STRONG BUY PRICE:         CHF 195 (30% below IV)               |
| ACCUMULATE PRICE:         CHF 224 (20% below IV)               |
| FAIR VALUE:               CHF 280                              |
| TAKE PROFITS:             CHF 336 (20% above IV)               |
| SELL:                     CHF 420 (50% above IV)               |
+---------------------------------------------------------------+
| POSITION SIZE: 0% at current prices                            |
| CATALYST: Margin expansion to 13% by 2027                      |
| PRIMARY RISK: Margin stall, China weakness extends             |
| SELL TRIGGER: EBIT margin <10.5%, dividend cut, mgmt departure |
+---------------------------------------------------------------+

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Appendix: Source Documentation

Primary Documents Downloaded

Data Validation

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Analysis completed following the Buffett-Munger-Klarman value investing framework.