GAFRIK RESEARCH – ANALYTICAL METHODOLOGY

Public Version 1.1 | July 8, 2026

1. PURPOSE AND SCOPE

This methodology describes the manner in which Gafrik Research s.r.o. analyzes publicly traded companies. Its objective is to ensure consistency, clarity, and long-term comparability of analytical outputs. The methodology serves as a safeguard of the analytical process against emotions and short-term market noise.

Objectives of the methodology:

Ensure consistency and readability of analytical outputs.
Separate the fundamental quality of a company from the market price of its shares.
Limit the impact of psychological and behavioral biases.
Create a foundation for a verifiable long-term track record.

Legal framework: This methodology does not constitute investment advice under MiFID II. Ratings express a general analytical opinion and do not represent a personalized investment recommendation.

2. CORE PRINCIPLES

2.1 Company Quality vs. Share Price

A fundamental pillar of our analysis is the distinction between business quality and investment attractiveness. Company quality describes how a business operates; share price reflects how much the market is currently willing to pay for it. An excellent company can be a poor investment at an excessive price, while an average company may represent an attractive opportunity when trading at a significant discount.

2.2 Rating as a Time-Bound Decision

A rating represents an analytical decision based on information available at the time of publication. A rating change is not an admission of error, but a response to a change in the context in which the company operates.

2.3 Transparency Above All

The reader must always be aware of the context in which the analysis was produced, particularly in the case of commissioned or issuer-sponsored research. Transparency regarding conflicts of interest is more important to us than marketing appeal.

2.4 Discipline Over Narrative

Narratives and storytelling can be misleading. In our framework, discipline means that every analysis is subjected to the same control questions, and negative information is given equal weight to positive information. Information provided by company management is attributed as such and is distinguished from independently verifiable data and from Gafrik Research estimates.

3. TYPES OF ANALYTICAL OUTPUTS

Deep Dive Analysis (15–25 pages): Comprehensive understanding of the business model, valuation, and rating.
Initialising Report (3–5 pages): Initiation of coverage with a high-level view on value.
Quarter Report (3–5 pages): Periodic update following the release of quarterly results.
Flash Note (2–5 pages): Rapid-response update following a material event or interim disclosure (investor calls, trading updates, partial financial results) where a full Quarter Report is not warranted. A Flash Note may confirm or revise the rating and target price. It applies the same valuation framework and disclosure standards as all other outputs and references the report in which the underlying assumptions (peer group, target multiple) were established.
Ad Hoc Rating Update (1–2 pages): Reaction to extraordinary events (M&A, regulatory changes).

4. ANALYTICAL FRAMEWORK

Each analysis is built on three core pillars:

4.1 Fundamentals

Key areas:

Business model quality (repeatability, scalability, defensibility)
Cash flow sustainability (operating cash flow / capex ratio)
Capital discipline (ROIC vs. WACC)
Competitive advantages (moat: pricing power, network effects, switching costs, economies of scale)

Output: Business quality score (1–10 scale)

4.2 Valuation

Approach: The valuation method is selected based on the company’s characteristics. Gafrik Research applies multiple valuation methodologies and selects the appropriate approach depending on the company type, industry, life-cycle stage, and quality of available data.

A) DCF (Discounted Cash Flow)

Use case: Primary method for companies with predictable cash flows; mature businesses, stable industries (utilities, consumer staples).

Key inputs: Free Cash Flow projections (5–10 years); terminal value (perpetual growth or exit multiple); WACC (Weighted Average Cost of Capital).

Limitations: Not suitable for early-stage companies without stable cash flows; high sensitivity to assumptions (WACC, growth rate, terminal value).

B) Relative Valuation (Multiples)

Use case: Primary method for companies with limited cash flow history; cyclical businesses, early-stage growth companies, companies in an investment phase.

Applied multiples: P/E (mature, profitable companies); EV/EBITDA (capital-intensive businesses); EV/Sales (growth companies without profitability); P/B (banks and real estate companies).

Benchmarks: Peer group (minimum 3–5 comparable companies, composition disclosed in the report or by reference to the report in which it was established); historical range (5-year median); sector / market average.

Limitations: Dependent on peer group quality; may reflect market distortions or valuation bubbles.

C) Scenario Analysis

Use case: Always applied (mandatory). Captures the full range of potential outcomes.

Scenarios:

Base case: Most likely outcome.
Bull case: Optimistic scenario.
Bear case: Pessimistic scenario.

Scenario probabilities: Probabilities assigned to individual scenarios represent the analyst’s judgment based on information available as of the date of publication. Indicative starting weights are 50% Base / 25% Bull / 25% Bear. The probabilities actually applied are disclosed in each report; any change relative to the prior report is stated together with its rationale.

Scope note: The scenario framework models going-concern outcomes. Tail events such as a refinancing failure or a liquidity event fall outside the going-concern valuation basis; where such a risk is material, this limitation is stated in the report.

Output: Fair value range (instead of a single-point estimate).

5. RATING SYSTEM

Ratings express the balance between risk and potential return at the current market price over a 12-month horizon.

BUY: A significant gap exists between price and value (> +15%). Business quality is stable and clear growth catalysts are present.
HOLD: The share price is close to estimated fair value or the outlook is highly uncertain. Indicative potential ranges from approximately -10% to +15%.
SELL: The share price materially exceeds estimated fair value or the company’s fundamentals have deteriorated. Expected downside exceeds -10%.

6. RULES FOR RATING CHANGES

Ratings are adjusted only in response to changes in assumptions, not short-term price fluctuations.

Fundamental trigger: Earnings miss/beat exceeding 10%, guidance changes, or acquisitions.
Valuation trigger: Convergence of the share price toward fair value requires revalidation of the model. Reaching the target price does not automatically imply a downgrade, but serves as a control point.
Catalyst trigger: If a catalyst disappears without replacement, the rating may be adjusted (e.g., from BUY to HOLD).

7. MONITORING AND TERMINATION OF COVERAGE

Rating Under Review: Applied if the analysis has not been updated for more than six months.
Suspended Coverage: After 12 months without an update, coverage is suspended to avoid misleading the market with outdated information.

8. CONFLICTS OF INTEREST AND DISCLOSURE

Gafrik Research applies strict rules:

Analysts are prohibited from trading securities of a covered company during the defined blackout period (before and after publication of a report).
All forms of sponsored or commissioned research are clearly disclosed in the Disclosure section and in each report.
Each report includes the history of recommendations for the covered issuer over the preceding 12 months, including dates, ratings, and target prices.
Each report discloses the distribution of Gafrik Research ratings across covered issuers (proportion of BUY / HOLD / SELL) and the proportion of covered issuers from which Gafrik Research has received compensation (issuer-sponsored coverage).
Each report states the date of the market prices used and their source.

9. VERSION HISTORY

Version 1.1 (July 8, 2026):

Section 3: Flash Note added as a defined analytical output type.
Section 4.2 C: Scenario probabilities clarified as analytical judgment with indicative starting weights of 50/25/25; applied probabilities and the rationale for changes are disclosed in each report. Going-concern scope note added.
Section 4.2 B: Requirement added to disclose peer group composition in the report or by reference.
Section 2.4: Attribution requirement added distinguishing management-sourced information, independently verifiable data, and Gafrik Research estimates.
Section 8: Disclosure obligations expanded (recommendation history, rating distribution, price date and source).

Version 1.0 (February 1, 2026): Initial public version.

At Gafrik Research, we believe in absolute transparency. Our methodology is an open framework by which every company under our analytical coverage is assessed.