GE - simplification is still winning the day

Was it really nine months to the day that I posted that the key for General Electric was simplification?

Since then the share has gone up a bit and then has come down a bit.  Even with the apparent 3% bump in the pre-open market, the share has gone nowhere fast A-to-B during the last three quarter.

But the story still looks solid.  The order profile looks good but there are some lumpy aspects here (e.g. on the transportation or aviation time)...

 ...but more interesting is the pricing profile.  Very impressive that five out of six areas are positive with healthcare - a sector the company's presentation document talks extensively about in terms of innovation and potential - the only laggard.

And then we get to the real meat of the quarterly report.  Whilst pricing is positive (but mix was negative) simplification was simply phenomenal.  Very, very impressive.  Simplification (aka cost cutting/efficiency drive) is still the key with the GE story.

So net net, GE's Industrial business posted a nice 3% rise in revenues and an operationally geared 9% rise in profits.  Overall numbers were only let down by GE Capital...  

...where there were some higher impairments.  There is still the hope for US$7bn of operating profits overall from this sub-division however.  

So with GE currently having just under a US$250bn market cap I would put the Industrial businesses with their still strong dynamics on a x12 ebita multiple giving the division a static value of just over US$200bn today.  Using that US$7bn of GE Capital's profit as a guide, this puts this division on around x6 earnings.  Roll the numbers forward a year and this compresses to something in the x5s.  And, let's not forget, GE is trying to create value within this division via spin-offs and the like.  

And that is the value opportunity within GE still.  For shareholders today there is another angle namely cash flow given they are returning more than the current 4% free cash flow yield (I believe it will be more like 5% split approximately two-thirds, one-third between a dividend and a buyback).  

 A fairer value for GE, I believe, is still closer to US$30 (with an interim review at around US$27).