Session 9: Bottom Up Betas

In this session, I look at why bottom up betas are better than a single regression beta, and use Disney to illustrate the process of estimating betas for divisions and companies.

[edinhadzavdic]

Regarding sector betas:  
the average of levered (equity) regression betas from a sample of companies from the sector is de-levered using the average of D/E-s from that same sample …

What would be different if we first calculate un-levered (business/asset) betas for each separate company from the sample (un-levering them using D/E for each separate company) and then calculate the average of those un-levered (asset) betas …?

Would, in that latter case, the resulting average number have a smaller error since it seams that the un-levered (asset) betas should be less „spread around” than levered betas which depend on leverage levels that might differ (much) more than the businesses (sample companies) should differ between themselves. The D/E (which is present in levered betas) seems to be an additional moving part that adds to the error level of the average.

Is this a completely wrong way of thinking or maybe just a detail that wouldn’t change much … ?

[shishirpescs]

The premise that NFL/live-sports is ensuring cable survives is incorrect:

1) ESPN doesn't have any NFL games except for Monday night foot-ball.
2) We can get streaming for NFL too NFL Sunday ticket (which previously was exclusive for Dish) for "non-local" games. This has been there for 4 years almost now. Local games can be seen with free OTA channels with a 50 usd antenna (NBC/FOX/CBS(and ABC for college football))..

[shishirpescs]

At 57.00 minutes, for Disney, the data is interesting.. the beta for Park and Resorts is 0.7..
How-ever:
a) it is a highly discretionary product.
b) I suspect it very likely has high fixed costs.
b) Based on D/E, its quite high too.

Why is the beta not only low but less than one ? Did the "hack" to use international data lead us to use wrong beta ?

[VNnimbs]

I DIDNT GET HOW you COME UP WITH LEVERED BETA VALUES OF OTHER COMPANIES? @43:00


Also what to do when other competing companies have more than one business? eg. @43:00 chart shows competing companies but how to estimate their beta and other data when some of them have mix of businesses like disney