“Companies have already taken decisive action to recover profitability. We believe that recovery is a matter of time…The recovery normally has two stages: cash inflection, which typically takes place two or three quarters after a volume cut. In this sense, the market seems to be underestimating not only the timing but also the magnitude of this windfall (for instance, we estimate that companies will collect, on average 65% of their EV until 2013, with little demand for land bank repletion),” the analysts write
Barclays argues that others are ignoring the cash coming from these firms and they fail to factor in the likely turnaround in margins from the adjustments most companies have taken to boost profitability like ditching unprofitable businesses. They also are relying too much on return on equity and price to book value measures, which fail because they overstate the effcts of the recent costs overrun in the group and fail to factor in a turnaround in margins."