Outlook: GEC facelift

THERE WERE two things that were a bit odd about GEC's upbeat set of announcements yesterday. Everyone likes to think of themselves as a whizzo, switched on technology geek these days, but despite its dramatic transformation, it is not immediately apparent that GEC qualifies for reclassification as an information technology stock.

The rewards of such a reclassification are obvious. IT stocks tend to be much more highly valued than electricals and electronics, the now unglamorous sector classification GEC presently inhabits. Such a reclassification alone would get Lord Simpson most of the way towards his goal of a doubled market capitalisation within five years.

The problem is that much as GEC would like to think of itself as now a fully fledged telecommunications and Internet stock, it is very much in the low growth areas of these markets. GEC still - er - makes things. True, if all goes according to plan, it will soon be out of defence electronics. Nor will its making of things be confined to Hotpoint washing and Averys weighing machines. GEC's famous cash mountain has been used to buy into some of the world's highest tech manufacturers in the world of telecommunications and internet access.

But in the end, these acquisitions are still in the business of manufacturing, and while their growth prospects may be a good deal better than those of traditional manufacturers, they are not nearly as good as the service providers they supply.

The second rather misjudged aspiration is that of doubling the company's market value over five years. In itself this is a completely meaningless goal, as well as being a potentially misleading one. Crucially it depends on what happens to the stock market, which is entirely outside Lord Simpson's control. Assuming he means all other things being equal, it also depends on how much equity he intends to issue in pursuit of his information technology quest.

Lord Simpson and his finance director at GEC, John Mayo, appear to have pulled off a remarkable transformation in their company's affairs. The message hardly needs embellishing in this way.

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