Schindler

Schindler Holding AG is a Swiss multinational company that manufactures, installs, services, and modernizes elevators, escalators, and moving walkways worldwide. Founded in 1874 in Lucerne, Switzerland, the company has grown into a global leader in the vertical transportation industry, standing shoulder-to-shoulder with giants like Otis, Kone, and Thyssenkrupp. Schindler is a classic example of a high-quality industrial business that might seem boring at first glance but reveals fascinating investment characteristics upon closer inspection. The business is controlled by the founding Schindler and Bonnard families, who ensure a long-term strategic focus. Its operations are split into two core segments: the sale and installation of new equipment, and the far more lucrative business of servicing and maintaining its vast installed base. For investors, understanding the interplay between these two segments is the key to appreciating Schindler's powerful economic moat and its potential as a long-term compounder of wealth.

Schindler’s business is a textbook case of the “razor and blades” model. First, they sell the “razor” (the elevator or escalator), often at a competitive, lower margin. Then, for decades to come, they sell the high-margin “blades” (service, maintenance, and modernization contracts).

This segment involves selling and installing new elevator and escalator systems. It's the front-facing, growth-oriented part of the business, directly tied to new construction and the global real estate cycle. When economies are booming and new skyscrapers and shopping malls are being built, particularly in growth regions like China and Southeast Asia, this segment performs well. However, it is inherently cyclical and subject to macroeconomic headwinds. Margins here are relatively thin due to intense competition. The primary strategic goal of this business isn't just the one-time profit from the sale; it's to expand the company's “installed base” — the total number of Schindler units operating in the world that will need servicing for the next 20 to 30 years.

This is Schindler's crown jewel and the engine of its profitability. Once a complex piece of equipment like an elevator is installed, it requires regular, legally mandated maintenance and periodic repairs and modernization to ensure safety and functionality. This creates a massive stream of high-margin, predictable, and recurring revenue. Customer relationships are incredibly sticky due to high switching costs; it is complex, risky, and expensive for a building owner to switch to a different service provider who may not have the proprietary parts or intimate knowledge of the original Schindler equipment. This recurring revenue from a global fleet of elevators provides a stable cushion that smooths out the cyclicality of the new installation business, making Schindler's cash flows remarkably resilient.

From a value investing standpoint, Schindler exhibits many of the traits that legendary investors seek: a durable competitive advantage, predictable earnings, and prudent management.

• Wide Economic Moat: The service business, with its high switching costs and recurring revenue, forms a formidable moat that protects profits from competition. The sheer scale of its global service network creates an additional barrier to entry.
• Long-Term Growth Drivers: Schindler is well-positioned to benefit from powerful secular trends. Urbanization means more tall buildings requiring more elevators. An aging population requires more accessible infrastructure, and the need to modernize old equipment in developed markets provides a steady stream of work.
• Resilient Cash Flows: The large, locked-in service portfolio ensures that cash continues to flow even when the new construction market slows down. This financial stability allows the company to invest through economic cycles and consistently return capital to shareholders.
• Family Control and Long-Term Focus: The founding families' controlling interest, maintained through a dual-class share structure of registered shares and participation certificates, fosters a culture focused on sustainable, long-term value creation over short-term quarterly profits.

• Cyclical Exposure: While buffered by the service business, a severe global recession or a sharp downturn in the construction sector, especially in key markets, will negatively impact the new installation business and overall growth.
• Intense Competition: The industry is an oligopoly, and Schindler competes fiercely with a few other major players. This can lead to price wars on new installations, compressing margins.
• Valuation: The market is well aware of Schindler's quality. As a result, its stock often trades at a premium valuation. A value investor must be disciplined and avoid overpaying. Analyzing metrics like the Price-to-Earnings (P/E) ratio and Free Cash Flow Yield relative to historical levels and future growth prospects is crucial to finding an attractive entry point.

Schindler is the quintessential “boring is beautiful” investment. It operates in a stable, growing industry and possesses a powerful business model that generates predictable, high-margin revenue year after year. The company's moat is built on the foundation of its massive and sticky service portfolio, insulating it from the worst of the economic cycle. For a long-term investor, Schindler is a high-quality compounder worth studying. The primary challenge is not in understanding the business, but in having the patience to buy it at a sensible price.