Beta (β) measures the systematic risk of an asset — its sensitivity to market-wide fluctuations — and is the risk multiplier in the CAPM cost of equity formula: ke = Rf + β × MRP. A beta of 1.0 means the asset moves in line with the market; above 1.0 it is more volatile; below 1.0 less sensitive. For unlisted companies, beta is estimated from listed comparable companies: unlevered (removing the effect of each comparable's capital structure), averaged across the peer group, then relevered to the target company's own capital structure. This unlevering-relevering process is one of the most technically sensitive steps in WACC construction.

‍

Example: 8 listed European precision mechanics comparables have a median unlevered beta of 0.85. Re-levered to the target's 40% gearing (14% tax rate): β_levered = 0.85 × (1 + (1-0.14) × 0.40) = 1.14. Applied in CAPM with MRP 6.5% and Rf 1.0%: equity risk premium = 1.14 × 6.5% = 7.4%, base cost of equity = 8.4%. Adding size premium (2.5%) and SCRP (1.5%) yields a total cost of equity of 12.4%.

‍

Hectelion documents beta selection, unlevering and relevering rigorously in every WACC construction — a key focus area for tax authority and auditor review.