General Electric

  • General   Electric, the industrial conglomerate, made the decision to split the company   into three focused business operations this week, after years of slashing   high debt levels, battling elevated costs at center, embarking on asset   sales, and numerous other restructuring efforts.

  • The spin-offs will result in GE Aviation, Healthcare, and Power   enabling investors to pick and choose which businesses they want to own.

  • Aviation the largest division by revenue with jet engines, its most   profitable segment, generating strong cash flows. It was unfortunately   impacted by the Covid-19 pandemic which stymied the air travel industry over   the past two years resulting in cancellations of orders for new aircraft.

  • The break-up plans are a positive move with the new stand-alone   entities becoming more focused, with their own clearer capital deployment and   specific business models. This move is like that of Siemens, which was split   into listed focused entities.

  • General Electric was founded in 1892 and seemed to have lost its way   acquiring diverse businesses, such as mortgages, credit cards, TV,   entertainment, and a host of other entities. This resulted in a major   underperformance over the past decade. The appointment of Larry Culp in 2018   ushered in a new era for the group. The recent $30 billion merger of GE Jet   leasing operations with an Irish company, and the sale of the Biopharma   business for $21 billion, resulted in a reduction in gross debt from $140   billion in 2018 to less than $65 billion currently.

  • GE will become a focused aviation entity operating under the GE   banner, manufacturing, selling and servicing aircraft engines. This includes   more than 26,000 military engines and 37,000 commercial engines sold over the   past years. A backlog of orders, estimated to be in the region of $260   billion, are expected to be rolled out as global economies normalize. The   power and renewable Energy unit, producing, selling and servicing gas and   wind turbines, also has a major backlog in orders and should benefit from   green energy zeitgeist.

  • It is early days for the pending transformation of GE to benefit   shareholders, however Deutsche Bank have arrived at a price based on the sum   of the parts of $131.00, with RBC analysts sharing similar views. The current   share price of $108.00 could herald a value unlock for patient investors, and   the move should be seen as a positive move away from the old-style   multinational conglomerate model.

General Electric