Macro Intelligence: Guzman Y Gomez to hit the boards

Article written by Carolina Flores (ausbiz)

Guzman Y Gomez to IPO

Guzman y Gomez (GYG) - an Australian Mexican-inspired quick service business (QSR) with global ambitions - plans to list on the ASX June 20th.

The company plans to raise $335.1 million dollars by selling shares at $22.00 per share. $135.1 million dollars will be paid to existing shareholders, with the remaining $200 million giving GYG a market cap at listing of $2.23 billion dollars, with an enterprise value of 32.5 times based on pro forma FY25 EBITDA.

GYG opened its first restaurant in Australia in 2006, and now has 210 sites across four countries including Singapore, Japan and the US. It operates a variety of formats including drive-thru, strip stores and locations at food courts and universities. GYG has a hybrid model with both corporate and franchisee-owned and operated restaurants.

Going public will allow the company to further pursue its ambitious growth plans, including the opening of new restaurants in Australia and internationally. GYG says it will be able to open 30 new restaurants in Australia per year over the near term. Ultimately it wants 1,000 Australian operations.

The prospectus lists compelling store economics as one of its key strengths, along with its brand-led marketing strategy, young demographic, scalable infrastructure and its highaverage spend per transaction.

Australian median restaurant economics by format for H124 (annualised)

When it comes to the blue sky on offer in the US, GYG says it is taking a measured approach after a rocky start with a former US management team. It plans to open just three new US corporate restaurants in FY25.

What’s the appetite for the new listing?

The excitement over the Guzman y Gomez listing had been building prior to the release of the prospectus. Long touted as a market entrant, GYG delayed its plans to list after a management hiccup. Its fast growth and strong brand has helped to fuel the anticipation, along with the drought for big-name IPOs in Australia.

Proof of demand came on June 7th when the offer was increased by 38% from the original target after GYG received orders from Capital Research Global Investors to buy into the IPO. Existing investor TDM Growth Partners will sell down shares to accommodate Capital's investment.

Despite the enthusiasm for the listing, the valuation of GYG has raised eyebrows. It has network sales of $760 million across 340 stores for an NPAT of just $3 million.

The prospectus has also come in for some criticism as GYG is excluding lease liabilities and share-based payments in its forecasts. For its part, GYG says excluding leases enables investors to gauge the relative financial performance of the underlying business, and allows for easier comparison to its US QSR peers. Critics say excluding lease liabilities allows GYG to inflate its earnings estimates.

GYG revenue breakdown chart

James Gerrish from Shaw and Partners and Market Matters told ausbiz investors would be buying the expectations for the future rapid growth of the business, however, he will likely not participate in the IPO.

“I think from a valuation standpoint, it's questionable,” Gerrish said. “The complexity around growth here in Australia will be finding sites.”

GYG lists key risks including its ability to execute on its growth objectives, increased competition and a general economic slowdown.

GYG vs DMP & CKF

GYG estimates that its share of the Australian QSR market is approximately 3.5% after opening 26 restaurants in 2023. It’s up against other ASX-listed fast food providers including Domino's Pizza Enterprises (DMP), and Collins Foods (CKF), which owns 279 KFC and Taco Bell restaurants nationally. Its other main competitors in Australia include Subway, which is owned by a private equity, and McDonald’s which is listed on the New York Stock Exchange (NYSE: MDC).

GYG market share as a % of the Australian QSR market

Domino’s is Australia’s largest pizza chain and its international operations include Japan, the UK, Ireland and several European countries including France and Belgium.

It’s been a tough couple of years for Domino’s, with higher input and labour costs hurting margins, and a slowdown in its Asian operations denting profits materially. Domino’s has also been hit by a general slowdown in consumer spending, with the company working in all markets to regrow weekly customer counts and profits for franchise partners.

Domino's pizza daily chart

UBS is ‘neutral’ on Domino’s Pizza with a price target of $40.00. It highlights near-term slower store growth and challenges in key markets, but points to significant same-store sales growth potential, especially in Australia & New Zealand and Germany. UBS stresses
European markets are critical for long-term store expansion.

Domino’s has a market cap of $3.57 billion, with an enterprise value to EBITDA of 17.83. Its H124 EBITDA was $185.3 million dollars on revenues of $1.3 billion. Net profit was down to $62.3 million.

Analyst recommendations: mean rating and price target

Collins Foods is a KFC and Taco Bell franchisee in Australia and a KFC franchisee in the Netherlands and Germany; it’s been listed since 2011.

Collins Foods’ share price gained in the wake of its most recent half-year results in November, with profitable growth reported despite what management called challenging conditions. Proceeds from the sale of its Sizzler brand in Asia helped bolster its balance
sheet.

Collins Foods daily chart

Citi recently cut its net profit after tax estimates for Collins Foods on lower expected sales and higher costs, trimming its price target to $10.60 and ‘downgraded’ its rating to ‘sell’. Citi analysts say they are more cautious in the near term with several data points
suggesting softer trading in Australia and cost pressures remain elevated.

Collins Foods has a market cap of $1.1 billion, with an Enterprise Value to EBITDA of 10.33. Its H124 underlying EBITDA from continuing operations was $109.9 million dollars on revenues of $696.5 million. Statutory net profit climbed to $50.5 million dollars.

Analyst recommendations: mean rating and price target

Guzman y Gomez, meantime, is expecting statutory EBITDA to grow from $29.3 million in FY23 to $59.9 million by FY25. Its net loss widened to $3.9 million in the H124 from $1.1 million in the prior corresponding period. GYG is forecasting its statutory net loss will widen to $16.2 million in FY24, before a return to profit of $6 million in FY25.

GYG pro forma and statutory forecast