Your latest analysis to find the Top 50 Hidden Gems Index (HGI) has flagged up four names in construction and housebuilding. Who are they and what makes them so prominent?

They are Keller, Persimmon, Barratt and Galliford Try. These four are among the 50 highest cash-generative companies quoted on the Stock Exchange, but their share prices fail to reflect that virtue.

The index normally used to value companies is the P/E ratio, which compares the price of a company's shares with profits, usually in the financial year just gone. What exactly is the HGI?

In the City's eyes, cashflow is still the number-two factor to consider when it comes to valuing companies. Profits are given top ranking and we think that results in anomalies.

Take Keller, our leading construction HGI name: it has an average cashflow growth of 195%, but its share price is failing to reflect this. On the basis of this evidence it would appear that Keller's shares should trade at a higher level.

In terms of robustness, which has the edge, cashflow or stated profits?

Cashflow includes less accounting adjustments and therefore does not suffer from the vagaries of the particular accounting policies adopted by differing companies and as such cashflows are probably more transparent for the investors used.

When you say cashflow growth, what do you mean? What timescale does the HGI index use?

We focus on a six-year period. Three years of the six are historical, looking backwards, and you can see the cashflow figures there in black and white in a company's accounts, while the other three years are those in the immediate future. For those figures we work from analysts' forecasts.

Your own analysts?

No, we turn to all the stockbrokers that have specialist analysts who follow construction and housebuilding.

Some contractors and housebuilders have never been asked to explain their cashflow.

No, and some would be loathe to do so.

But when a predator suddenly appears and a takeover is on the cards, what financial indicators will the hunter base its valuation on?

On the company's future cashflow projections.

You can be sure that's what HBOS focused on while preparing bids for McCarthy & Stone and for Crest Nicholson. Similarly when Barratt first ran the rule over Wilson Bowden.

My message is that if you want to stay independent, you should spend much more time working up the market's better awareness of your cashflow performance.

After seven years of producing the HGI listings, do the hidden gems stay covered up or do some sparkle?

Well someone out there must follow the same method of evaluation because one in five of our HGI leaders gets bid for after showing up on our list.

Hidden Gem Index

The HGI is used to produce a ranking that highlights which companies' cashflow per share price growth is not adequately rewarded by the equity market - the higher the index, the more of a 'hidden gem' the current share price is.