Ok to use weighted CRPs for Cost of equity?
Got a rather tough one for all of you modeling wizards and deep dive guys. I'm building a DCF for a company at its scale up stage. Growth is around 100% YoY, and EBITDA will soon become positive. Company currently operates in an EM and is looking to raise funds. As soon as they raise the said funds, most likely in a convertible loan, they will move forward with an EU - Germany - expansion. They have a proven business model and international growth assumptions are on rather solid grounds.
Their revenue mix will shift to EU faster than their operations command due to massive exchange rate difference between home country and EU. This is obivously very good for them on many levels, and especially from a valuation perspective. EU revenues will not only command higher market multiple but also bring their cost of equity down for DCF.
For the cost of equity, is it ok to intially start with a Local CAPM for home country and in the coming years shift to a weighted average -determined by revenue %- of German and home country risk premium in our CAPM? Will this be deemed too speculative by the investors as, frankly the company hasn't raised the funds, expanded in to the EU and made money there yet, and we are assigning cost of equity based on speculative forecasts? Being the hypergrowth company it is, the ERP we can assign today on future dates will make a MASSIVE difference in valuation, and I would assume investors would have some understanding of this. But just how much of this is acceptable practice?
Note: Looking to fundraise in Euros
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