The levered beta (or equity beta) measures the sensitivity of a company's equity return to overall market movements, incorporating the amplification effect of financial leverage. It is higher than the unlevered (asset) beta as soon as the company carries debt, because leverage amplifies the risk borne by equity holders. It is used directly in the CAPM to estimate the cost of equity: ke = Rf + β_levered × (Rm - Rf). For unlisted companies, the levered beta is derived by relevering the sector's unlevered beta to the target's capital structure using the Hamada or Modigliani-Miller formula.

‍

Example: a sector peer presents an unlevered beta of 0.85. Relevered to the target's capital structure (net debt/equity 50%, tax rate 14%), the levered beta is 0.85 × (1 + (1 - 0.14) × 0.50) = 1.22. Applied in CAPM with Rf = 1.0% and market risk premium = 6.5%, the cost of equity is 1.0% + 1.22 × 6.5% = 8.9% — the dominant component of the WACC.

‍

At Hectelion, levered beta construction for unlisted companies is carefully documented with justified capital structure assumptions — a key focus of every valuation report.