At first glance, betas derived from a custom group of comparable FTSE companies makes inherent sense. This CAPM input would be more representative, in theory, than traditional betas derived from industry groupings. Investment analysts often create their own custom betas, though they’ve been less commonly available in the business valuation profession.
Kroll are developing a new module for its Cost of Capital Navigator that will enable users to derive company-level betas based on their own selection of comparable companies. During a recent BVR webinar, Carla Nunes and Jim Harrington (both with Kroll) mentioned that they are conducting a survey to help determine what custom beta features business valuers would use. BVWire—UK will report on the findings from Nunes and Harrington’s survey in a future issue.