British companies in the FTSE 350 index are expected to generate more cash surplus in the next 3 years despite the economic slump. According to the KPMG Cash Counter survey, the analysts are estimating a cash surplus of £320bn, 52% higher than the January 2007 forecast. The cash generation of FTSE 100 companies is expected to be more than £278bn by the end of 2010, 61% up on the forecast.
The oil, gas, and mining companies will be the biggest gainers as a result of high commodity prices. KPMG is predicting gas and oil prices to remain strong and may not peak for sometime. But the cash surplus of FTSE 100 companies, other than oil and gas, was up only 1.7% than the forecast.
The survey points out that the surplus cash flow of more UK-focussed FTSE 250 companies is likely to go down by 6.7% to £23.6bn from the forecast of January 2007. KPMG is however considering this forecast as analysts’ over-optimism. KPMG is predicting that companies would hold back surplus cash for tougher economic conditions and may use it for making acquisitions.
David Simpson, a partner in KPMG, is surprised about the findings that corporate cash flow would be so robust despite the gloomy economic scenario. He commented that City estimates seemed to be too high and the impact of credit crunch is not yet full.