Monday, November 27, 2017

Trouble at General Electric

General Electric is an american conglomerate operating in a long list of sectors:
Energy, aeronautics, financial services, health, automotive, software and engineering among others.

The complexity in investment and research in these many directions seems to have caused a loss of focus on its most productive ones, the organization having grown to gargantuan sizes difficult to control.
Indeed it has been posting bad results, with profits predicted for 2018 of just 1.06$ per share.

As a consencuence, the share has lost 100.000 million dollars since January, from 31$ down to 17.5$ in november.

Reacting to fix this trend, the management announced they want to refocus and simplify  the company by consisting of only three sectors: aeronautics, health and energy.

They also announced a smaller board of directors with salaries tied to the company's performance and more importantly a reduction of its dividend by 50%.

The whole package was ill-received by the stockmarkets, the share losing 7,17% in a day.

These changes will mean the least productive segments of the company will suffer job cuts, up to 24.000 workers, and some parts will be sold off completely, up to 20.000 million dollars.

While the aviation engines and health divisions continue to grow consistently, the cost of the other sectors and the restructuring might mean tough times for the near future of the company, although if succesful it might turn the company around to good profits.

For me, the share is reaching quite interesting prices, that being said, with the dividend halved and this much uncertainty on the horizon, I feel the possibility of the company being less profitable of an investment than others is quite high.

What makes me discard it for now, is that I'm in the eurozone, and the euro is not strong enough against the dollar for me to consider a long term investment there.

An inconvenient change in the currency ratios and whatever improvement I achieved by investing in the USA over the EU might be gone, the dividend turned less competitive than companies in my own country.

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Brothers, best of luck in your investments!

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