Survey Report

COVID-19 One Year Later
Impact on Cost of Capital
July 2021

Table of Contents

Polling Results of May 20, 2021 Webinar:“COVID-19 One Year Later – Impact on Cost of Capital and Related Valuation Issues”

On May 20, 2021, Duff & Phelps,
A Kroll Business’ Carla S. Nunes,
CFA (Managing Director) andJames P. Harrington (Director)
discussed the impact of COVID19 on global financial markets
and cost of capital assumptions
one year after the outbreak
before a live audience of730 participants.*

01

In which country/region are your valuations primarily focused?

02Which methods/data sources do you use as the equity(market) risk premium (ERP) input in your cost of equity
estimates?

03

What equity risk premium assumption are you currently using
for your EUR-denominated valuation projects?

04

Do you typically incorporate country risk adjustments in yourvaluation analyses?

Throughout the webinar, theypolled the attendees on valuationand cost of capital related topics.
In the following slides, you willfind the results of these pollingquestions.
*Out of 730 live attendees, 17% were Duff & Phelps
employees and 83% were external/third-party
participants

Survey Report “COVID-19 1 Year Later – Impact on Cost of Capital”

July 2021

2

In which country/region are your valuations primarily focused?

0172.8% of survey participants conducted valuations primarily based in North America.

North America
Europe, Middle East& Africa (EMEA)

72.8%

Asia Pacific

17.9%
Latin America& Caribbean

3.0%

4.0%

Note: 2.3% - Other / Not Applicable
Survey Report “COVID-19 1 Year Later – Impact on Cost of Capital”

July 2021

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Which methods/data sources do you use as the equity (market) risk
premium (ERP) input in your cost of equity estimates?

02

The great majority of survey participants relies on the Duff & Phelps Recommended U.S. ERP. Close to athird of participants also uses Long-term Historical Averages as a basis to estimate ERPs, while approximately
23% utilizes the Supply Side ERP published by Duff & Phelps. Almost a quarter of the audience also takes into
consideration Professor Damodaran’s Implied ERP.*
Other / Not
Applicable

3.4%

Supply Side ERP,
published byDuff & Phelps22.8%
Long-term Historical
Average

31.1%

250%

57.5%

Xx x xxxxxxx xxxxxx

Duff & Phelps
Recommended
U.S. ERP

Prof. Pablo
Fernandez’
Survey of ERPs

2.3%

Other Implied ERPsources (e.g. MarketRisk-Premia.com)?

10.1%

Prof. Damodaran’s
Implied ERP

23.7%*This was a multiple-choice question with respondents having the ability to select multiple answers.
Survey Report “COVID-19 1 Year Later – Impact on Cost of Capital”

July 2021

4

What equity risk premium assumption are you currently using for yourEUR-denominated valuation projects?

03

A majority of respondents conducting valuations in euros (€) were using an ERP in the range of
5.0% - 5.99%, in line with the newly-published Duff & Phelps Recommended Eurozone Equity Risk Premium.*
Duff & Phelps’ Recommended Eurozone Equity Risk Premium– German Investor Perspective applied to EUR-Denominated Projections*

December 2019

March 2020

April 2021

4.5% to 5.0%

5.5% to 6.0%

5.5% to 6.0%

*Our recommendation is developed in conjunction
with a German Normalized Risk-free Rate of 2.0%.

48.9%

Some countries may have regulations or guidelinesthat preclude the use of normalized risk-free rates.
The Duff & Phelps’ approach does not supersedesuch local guidance.

25.8%

8.2%

3.0% - 3.99%

10.6%

6.5%
4.0% - 4.99%

5.0% - 5.99%

6.0% - 6.99%

7.0% - 7.99%*58.5% of the audience noted that they do not perform EUR-denominated valuation projects
Survey Report “COVID-19 1 Year Later – Impact on Cost of Capital”

July 2021

5Do you typically incorporate country risk adjustments in your valuation
analyses?

04

Almost half of the respondents incorporate country risk adjustments directly in their discount rate estimates.

0.7%
I do not believe global investors demand anincremental premium for country risk

18.7%
I do not perform valuations in countries wherecountry risk is an issue

8.5%
I typically incorporate country risk directly inprojected cash flows, when appropriate

49.3%
I typically adjust my cost of capital estimates(discount rates) for country risk, whenappropriate

22.9%
Other / Not Applicable

Survey Report “COVID-19 1 Year Later – Impact on Cost of Capital”

July 2021

6Impact of COVID-19 on Discount Rates and Country Risk
Data from the Cost of Capital Navigator – International Cost of Capital Module

The outbreak of COVID-19 had a significant impact on country risk perceptions across the globe. This graph shows how country risk
has fluctuated across different geographic regions since December 2019. Although country risk has subsided since the height ofthe crisis, the level of risk continues to be elevated when compared to December 2019, with Africa being particularly affected.
These and more statistics can be found in the International Cost of Capital Module in the Cost of Capital Navigator.
Country Yield Spread Model from a United States (USD) investor perspective*

Africa

11.0%

10.0%

10.0%
9.0%
8.0%
7.0%

Latin America andCaribbean

7.7% 7.8%

3.0%
2.0%
1.0%

5.5% 5.5%

5.0%

4.7%
4.3%
2.9%

Asia
Pacific

6.1%

6.0%
4.0%

7.6%
6.5%

6.4%

5.0%

MiddleEast

4.1%

3.4% 3.2%

4.6%

4.7%

4.4%

Europe
1.8%
1.1%
1.4%
1.0%
0.8%
0.6%

1.5%

3.1%
2.8%
1.9% 1.7%

0.0%
December 2019

March 2020

June 2020

September 2020

December 2020

March 2021

*Based on the median country risk premia within each geographic region as classified by Euromoney. In total, it captures 175+ countries.
Survey Report “COVID-19 1 Year Later – Impact on Cost of Capital”

July 2021

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