Fair Value Methodology & Standards

Version 2.0 · updated 25 July 2026 · written so any analyst or auditor can reproduce every number.

In one line

We value each stock six independent ways, take the median as the ZEME Fair Value, and publish the full model range and a confidence score. Nothing is a black box.

1. The standard we follow

ZEME's engine is built to the mainstream intrinsic-valuation framework taught and published by the recognised authorities in the field:

CFA Institute, absolute vs relative models; use multiple approaches.
Aswath Damodaran (NYU Stern), intrinsic value = present value of expected cash flows; country-risk-adjusted CAPM for emerging markets; "a DCF that yields a single number is flawed, present a range."
International Valuation Standards (IVS), consider and reconcile multiple approaches.
Morningstar, DCF fair value wrapped with an uncertainty rating.
Simply Wall St, 2-stage cash-flow model with a 10-year explicit horizon.
IFRS 13 (IASB). The accounting definition of fair value (context).

2. The six valuation models

Each applicable model is computed for every stock; models that don't fit a stock type are excluded (banks are not valued on EV/EBITDA or a DCF-of-EPS).

Model	Formula	Applies to
Discounted Cash Flow (10-yr, 2-stage)	Σ FCFₜ/(1+WACC)ᵗ + Terminal (Gordon Growth)	Non-financial
Quality-adjusted Sector P/E	EPS × sectorPE × quality factor (ROE-based)	All
Graham Number	√(22.5 × EPS × Book Value/share)	Non-financial, EPS>0
EV/EBITDA	EBITDA/share × sector EV target	Non-financial
Justified P/B (residual income)	P/B* = (ROE−g)/(Ke−g); FV = BVPS × P/B*	Banks / financials
Gordon Growth DDM	FV = DPS(1+g)/(Ke−g)	Dividend payers

Loss-makers use an asset-based floor; earnings-recovery names use a forward lane. Both are labelled distinctly and are not blended into the median.

3. The discount rate (cost of capital)

CAPM with an emerging-market country-risk premium, the Damodaran approach:

Ke = Rf + β_adj × (ERP + CRP)
WACC = Ke·wₑ + Kd·(1−t)·w_d (banks use Ke only)

Input	Value / source
Risk-free rate (Rf)	Live SBP policy rate, single authority, no hard-coded number
Beta (β_adj)	252-day regression vs KSE-100, Vasicek/Blume shrinkage toward 1.0 (standard industry practice)
Equity risk premium	5.5% (Pakistan)
Country risk premium	2.0%
Terminal growth	8.5% nominal (< Rf, so never explosive)

DCF horizon = 10 years. The international norm (Morningstar, Simply Wall St, Damodaran). A shorter window pushes too much value into the terminal value, the least reliable component.

4. Why the median: and why it can't be challenged

ZEME Fair Value = the median of the applicable models

Robustness, 50% breakdown point. Up to half the inputs can be arbitrarily wrong and the median is unaffected. A weighted mean has a 0% breakdown point. One aggressive assumption drags the whole number. No single mis-specified model can move the median.
No single-method dependence. The headline is, by construction, the middle of independent methods. You cannot say "you relied on one assumption."
Triangulation per IVS / CFA. A transparent, rule-based reconciliation of multiple approaches, not a discretionary pick.
Fully reproducible. Every sub-model value is published, so anyone can recompute the median by hand.

Range & confidence

We publish the range (lowest to highest model) and a confidence score (0–100) that rises with the number of agreeing models and falls as they disperse. Wide disagreement → low confidence, shown honestly. A single-model stock is capped near 40 and flagged "low confidence," never presented as firm.

5. Data & verification

Inputs (EPS, P/E, P/B→book value, ROE, EV/EBITDA, dividend, growth, beta, sector) come from the fundamentals store; price is the authoritative PSX close. Dividends are cross-checked against the PSX payouts feed, shares outstanding against the PSX company page, and beta against a second provider. We are extending dual-source verification to every income-statement input and will withhold or badge any figure that cannot be corroborated by two sources.

Limitations, disclosed: where a filed cash-flow statement is unavailable for a PSX name, the DCF uses a documented EPS-based cash-flow proxy, being upgraded as filed data is ingested. Fair value is an estimate of intrinsic worth, not a price target or a guarantee. This is educational analysis, not investment advice, always verify against primary sources before trading.

References

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