Got an interview for ER at Jefferies (London), analyst position and have a few Q’s.
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WACC. Do analysts actually use CAPM to calculate cost of equity? If so, where are the inputs derived from? I.e beta, risk premium etc.
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How far out do sell analysts model before using terminal value? Presumably this is sector dependant, can any drop their 2 cents for Utilities sector?
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I’m in no position to be picky, but would you say once you get put in a sector, that it effectively defines a lot of your career? How hard is it to move from one sector to another in ER?
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Lastly any comments/advice/experience from Jefferies London ER would be super useful.
Bump
WACC - Yes I would say most banks out there use some variation of CAPM to determine what their cost of equity is. Obviously there are subtle variations on how banks determine what the market premium of risk free rate yes but yeah you get the idea.
Sell-side models - I would say 5 years would be common for most industries but these are usually artificially inflated to show a “blue-sky” scenario anyway. For Utilities... I haven’t done a model myself but I’d assume long-term cash flows are pretty constant and $/unit charges could be forecast with some certainty or locked down so that’s something to keep in mind.
Sector - I am pretty sure the sector you get in at the beginning prolly sets you down quite a bit though I’m sure you can switch out if you are determined. As a sector analyst you take time to build relationships with the management team in the companies you cover and you do develop and very in depth understanding of the sector.
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