The WACC of Smart Metering Systems PLC (SMS.L) is 7.3%.
| Range | Selected | |
| Cost of equity | 5.90% - 7.90% | 6.90% |
| Tax rate | 12.70% - 20.70% | 16.70% |
| Cost of debt | 5.10% - 30.60% | 17.85% |
| WACC | 5.8% - 8.8% | 7.3% |
| Category | Low | High |
| Long-term bond rate | 4.0% | 4.5% |
| Equity market risk premium | 6.0% | 7.0% |
| Adjusted beta | 0.32 | 0.41 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 5.90% | 7.90% |
| Tax rate | 12.70% | 20.70% |
| Debt/Equity ratio | 0.06 | 0.06 |
| Cost of debt | 5.10% | 30.60% |
| After-tax WACC | 5.8% | 8.8% |
| Selected WACC | 7.3% | |
The Cost of Equity reflects the return a company needs to deliver to shareholders to justify the risk of investing in its shares. It’s computed using the Capital Asset Pricing Model (CAPM), which blends the risk-free rate, the stock’s beta, and the market risk premium.
This method evaluates the stock’s risk compared to a safe investment and the market’s overall volatility.
Here’s how we figure out the cost of equity for SMS.L:
cost_of_equity (6.90%) = risk_free_rate (4.25%) + equity_risk_premium (6.50%) * adjusted_beta (0.32) + risk_adjustments (0.25%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.