Cheap HellermannTyton looks a safe bet

HellermannTyton has a solid track record of outperforming global industrial production by 3 to 4 per cent since 2007, according to broker Numis. This bodes well given current economic uncertainties, especially in Europe where over half of group revenues are generated. The group operates in numerous other locations, including Asia and the Americas, bringing some welcome diversity and it boasts a range of market-leading products.

Of its fastening, insulating, protecting, routing and connecting components for datacom, electrical and automotive markets, the probably most exciting business involves equipping cars with cable ties. Almost half of sales come from the automotive market, which has been buoyed by resurgent production numbers and speculation that a low oil price could increase demand even further.

Moreover, the legal framework in place to reduce fuel emissions has led many manufacturers to adopt measures to reduce the weight of cars. A cheap way to achieve this is by replacing metal fixings with plastic ones, which HellermannTyton is a leading supplier of. This helped push automotive revenues up by one-fifth in constant currency terms in the nine months to 28 September 2014. And this is a market that has shown long-term growth. Whereas back in the 1970s the average motor would use about 200 metres of fixing cable, nowadays this stands at roughly 2.5km.

But this isn't the only market buoying HellermannTyton's prospects. Cable management solutions also play a key role in global urbanisation, as cables are required in a variety of industries, including construction, data, power and access to electricity. This leaves the group exposed to a number of long-term structural drivers, including growing trends like 'big data' and the 'internet of things'. Indeed, in an era where the internet rules, products such as fibre-optic connectors are pivotal in connecting a growing number of people and things to the web.

Exposure to such markets, coupled with HellermannTyton's brand reputation, global presence, range of over 20,000 niche products and strong customer relationships has helped keep gross margins above 40 per cent since 2008 and supports mid-teen operating margins. While cable management products may seem relatively simple, manufacturing industrial strength, fire-resistant cable ties is in fact a sector with significant barriers to entry.

Since 2007, according to broker JPMorgan, the group has invested €165m (£124m) to ensure its extensive product line is top notch, while continuing to cut manufacturing costs. HellermannTyton can now produce over 12bn fixings, clips and cable ties, test instruments and tubing a year at relatively low cost, thanks to a highly automated and efficient manufacturing processes.

Additional services, meanwhile, such as custom-made products and just-in-time delivery keep customers loyal, and ensure that HellermannTyton's gross margins remain higher than international peers such as Amphenol (US:APH) and Molex (US:MOLXA). It has also been outfoxing its UK-listed peers too, with mid-teen year-on-year organic revenue growth and an order count that puts to shame many other companies in the FTSE 350 electrical engineering sector.