General Electric

General Electric – JPMorgan Swings And Misses?

JPMorgan’s presentation on General Electric Company (GE) from the Framework Member Conference Call.

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C. Stephen Tusa, CFA

  • Long career covering General Electric and competitors
  • Inside access: Mentioned Jeff Immelt discussing whether or not GE Capital should be jettisoned at a breakfast in 2005.
  • Well thought of on the buy-side – “an analyst you can trust”
  • GE report published in July is 133 pages and is very thorough. I was in awe with his knowledge of the company
  • We believe Tusa’s call is essentially a bet on the strength of the Power market and for the paradigm for that
  • His most credible economic argument is that General Electric, a firm whose Power services are focused on providing “H-Class” gas turbine generators, is ill-placed for a world of renewables.
  • Believes that GE is perennially behind the curve regarding strategic portfolio balancing.
  • Worries that GE’s cash flows are insufficient to cover dividends.

Revenues

General Electric

2020 Assumptions (FWI)

Worst Case: $129.9 billion - 1.2% CAGR Best Case: $146.1 billion - 4.3% CAGR

General Electric

2020 Assumptions (JPM)

Base Case: $131.8 billion - 1.6% CAGR Tusa's argument relies upon projections for gas turbine (GT) market over the next four years.

General Electric

  • In his view:
    • GT market is oversupplied right now – EM buildouts and developed world switch to
    • GE holds largest market share but Siemens is close, Mitsubishi Heavy and an Italian firm also in the running.
    • Increasing competition for business and lower service contract payments cause GE’s Power business to decline at 4%-5% per year in 2019-2020.

General Electric

  • Tusa is probably right about near-term conditions. GE also said 2017-2018 will be weak, partially due to competition and oversupply.
  • His 2019-2020 forecasts rely upon his implicit assumption that heavy-duty gas turbine (HDGT) generation is no longer needed because of renewables’ generation ascendency.

Revenues - GT Demand

  • Europe has seen a rapid fall-off in GT generation since 2010.
  • Siemens, GE’s closest competitor has been affected by this and are skeptical of the health of the (HDGT)

General Electric

  • Europe has seen a rapid fall-off in GT generation.
  • Siemens, GE’s closest competitor has been affected by this and are skeptical of the health of the heavy-duty gas turbine (HDGT)
  • However, EU decline did not show up in the GT order data Tusa quotes in his own report
  • EM might be oversupplied right now, but it is hard to draw a trendline four years out on the basis of these data.
  • IEA and others also see GT generation as largest single source through 2035

General Electric

  • GE’s sales also derive from industrial demand – GT generation for smelters and mini-mills – in addition to utility demand.

General Electric

See the full PDF below and check out more here

Comment (1)

  • steve1red

    Clayton, Dubilier, and Rice recently fired the CEO of Brand Energy. That was a good move. They need to finish the job by getting rid of all the people that the ex-CEO brought in with him. The ex-CEO was incompetent and so were the ex-GE people he brought in with him. Clayton should watch those people like a hawk. If they play politics or don’t get along with co-workers, they should be fired right away. Brand Energy recently merged with Safway.

    Clayton shouldn’t let Brand executives waste money on Golf tournaments and useless trips. The ex-CEO and his gang did a lot of that. They said it was for charity but it was a waste of Clayton’s money. Clayton should make the ex-CEO and Brand executives reimburse them for all past trips and expenses. That means all airfare, hotel, and other expenses for past trips should be paid back to Clayton. The ex-GE guy in Houston who was called President of Business Development should definitely have to pay Clayton back since he was a big part of those useless golf tournaments and other events which wasted company money. Clayton should do a detailed investigation and accounting of those trips and tournaments. Don’t let Brand executives hide behind the “charity” excuse.

    Clayton, Dubilier, and Rice is a PE firm very similar to KKR. They own Brand Energy.

    September 17, 2017 at 7:30 pm

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