TE Connectivity PLC - Registered Shares

TE Connectivity is a world leading electrical and electronic connector manufacturer, selling into automotive and industrial end markets. The company is the world's largest automotive connector supplier and benefits from a content-per-vehicle uplift when selling high-voltage connectors for electric vehicles rather than low-voltage ones for internal combustion engine vehicles. The company also sells connectors into a broad array of industrial end markets such as factory automation, clean energy, and data centres. We sold our position in Aptiv and recycled the capital into TE Connectivity, where we have higher conviction in the firm’s competitive positioning and growth outlook.

TE Connectivity has been a long-held position for over a decade, but we have decided to sell it as part of our strategy to harvest gains from long-held positions. The company, while favored by investors for its exposure to artificial intelligence, no longer aligns with our current investment focus. We are reallocating proceeds into what we perceive to be undervalued opportunities, particularly in SMID caps and international names.

TE Connectivity reported record net sales, operating margin, and cash generation, as well as a strong increase in orders. The company is benefiting from broad-based AI strength and continued demand in renewables and hardening the electric grid. TE Connectivity is one of the global leaders in the connectors and sensors industry. It designs and markets devices that connect and protect the flow of power and data inside a wide variety of industries including AI, automotive, and energy. The company is also relatively well positioned to navigate tariffs, as three-quarters of its revenues are generated outside of the U.S., and two-thirds of manufacturing-to-sales is region for region.

TE Connectivity is a strong contributor to our portfolio, benefiting from its AI-enabled sensors and embedded systems. Our flexible approach to dividends allows us to capitalize on its growth potential while managing risk effectively. This positioning enables us to take advantage of the ongoing enthusiasm for AI, while also safeguarding against potential market volatility. We believe TE Connectivity's commitment to innovation and its strategic focus on AI applications will drive future performance.

TE Connectivity has shown strong performance, increasing nearly 30% in the last quarter. This growth reflects the broader trend in the tech sector where AI stocks are thriving. The manager believes that TE Connectivity is well-positioned within this landscape, benefiting from the ongoing advancements in AI and technology. The fund's decision to build a position in TE Connectivity indicates confidence in its future prospects and competitive advantages in the market.

TE Connectivity generated strong performance in Q3, as faster-than-expected data centre and energy utility revenue growth, as well as margin expansion from their Industrial Solutions segment, facilitated very strong quarterly results. This performance highlights the company's ability to capitalize on emerging trends in AI and energy efficiency, positioning it well for future growth.

TE Connectivity exceeded expectations in its fiscal second quarter, reporting stronger than expected organic growth and earnings per share in late April. The company’s organic revenue growth accelerated to 5.3% in the most recent quarter, a significant increase from the 1-2% range observed over the prior three quarters. This strong performance was primarily fueled by double-digit growth in the Industrial Solutions segment, which saw broad-based increases. Adjusted operating margins expanded by 90 basis points, reflecting strong operational performance across both segments. The combination of better-than-expected growth and margin expansion drove a 13% increase in earnings per share (EPS) compared to the previous year. These positive results led to a re-rating of TE Connectivity’s shares.

TE Connectivity makes connectors for a wide range of uses such as automobiles, data centers and medical devices. Its main end markets, auto and industrial, have come under some cyclical pressure, which weighed on the stock and provided an attractive entry point to this strong business. We believe that despite the cyclical challenges, TE Connectivity's robust business model positions it well for future growth.