Uncategorized 16.4.2015 08:00 am

GE trims down to conquer the world

Image courtesy stock.xchnge (KillR-B)

Image courtesy stock.xchnge (KillR-B)

Shares in US industrial heavyweight General Electric (GE) surged more than 10% on Friday after the company announced a major restructuring which will see it selling off its $500 billion (R 5.9 trillion) GE Capital business, offloading its $26.5 billion and initiating a share buy-back of around $50 billion.

Jack Welch, who was chairperson and CEO of GE between 1981 and 2001, commented on micro-blogging site Twitter that the move was “smart” and “timely” considering how much the financial world had changed since 2008 when the global financial crisis shook capital markets across the world.

Current CEO and chairperson Jeff Immelt summed it up on Twitter: “Through the sale of most GE Capital assets, we’ll create a simpler, more valuable industrial company”.

Ultimately investors will have exposure to a focused industrial company which will be a direct play on global economic activity while lessening exposure to the shifting winds in the global markets.

Ole Man River

One of the amazing statistics about GE is that the company has paid a dividend every quarter for more than 100 years. Irrespective of world wars, recessions and a global financial crisis to boot, the company has consistently returned capital to shareholders.

GE has over the past few years touted the fact that infrastructure spend by the year 2030 will come in at $60 trillion and with operating margins in excess of 16%, the company is ideally positioned to cash in on this global investment trend.

With the stated intention of returning $90 billion to investors between now and 2018, investors have some indication about management strategy over the next few years: shareholders will be front of mind as the company streamlines itself.

Immelt told shareholders on Friday: “We are completing another definitive and important move to reshape GE for the future. GE is a fast-growth, high-tech industrial company, built on the capabilities of the GE Store. The team is executing a detailed plan to boost margins and returns. We are allocating capital to grow the Company and benefit investors. Our best days are ahead.”

Peer outperformance

According to analyst data compiled by FT.com, the company is expected to outperform the market.

South African investors are able to invest in General Electric through a number of platforms including the Standard Bank Webtrader offering. Should you want to cash in on the global infrastructure trend but don’t want exposure to just the GE share, you can look at buying a US-focused exchange traded fund which specialises in industrial companies.

This article is part of a sponsored education series run by Moneyweb and Standard Bank. For more information about investing offshore please visit the Standard Bank Webtrader platform or e-mail your inquiries to marc@moneyweb.co.za

 

 

 

 

 

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