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GYG - Guzman y Gomez

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Sean K

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I like nachos and margaritas, but this looks like it's going to be a disaster.

Not sure what the ASX code is going to be. Maybe GAG.



Known for spicy tacos, the Tex Mex themed Guzman y Gomez is putting much-needed fire into Australia’s stalled stock listings market.
But will its burritos give investors bang for their buck?

Although the planned raising is small at just over $242m, with current backers holding onto their stake, the fast food upstart is priced to have some heft with a market capitalisation, coming in at about $2.2bn on its debut.

The relative scarcity of its shares available to outside investors will certainly help to keep a floor under the price, but at $22, it’s a high-priced stock.

Indeed, at these levels it makes Guzman one of the most expensive quick service restaurants in the world, with shares priced well ahead of local rivals Domino’s Pizza as well as KFC and Pizza Hut franchise owner Collins Food.
 
.... the prospectus makes the case for measured growth – a combination of growth in existing stores, growth from an Australian store rollout, and then potential growth from GYG’s small international business, including a small US foothold in Chicago – but it comes at a reasonably aggressive valuation.

The IPO puts GYG on an enterprise value to EBITDA multiple of 32.5 times, notably higher than Domino’s Pizza Enterprises about 18 times, although some of that difference is attributable to the fact GYG owns its brand.

Still, the macroeconomic backdrop is broadly unhelpful, and GYG’s average transaction value of $21.27 is above the broader quick-service restaurant industry; that’s both a blessing and an indication it is a more expensive treat.

GYG will be hoping for a bit of a halo effect from the New York-listed Chipotle Mexican Grill, shares in which have surged 40 per cent this year to record highs amid strong growth and the announcement of a 50-for-one stock split that will make its shares – sitting at $US3106 apiece – accessible to more retail investors. Chipotle trades on a multiple of 43 times, which will only add to the debate about GYG’s valuation.
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...so, about 10 per cent will be free float. And likely to have future selldowns as early stakeholders cash out? .... Not for me.
 
I know nothing about the company, I have eaten there only once, but they are opening three new locations near me, so it does seem they are really pushing for growth.
 
IPOs are priced on a multiple of earnings per share or net profit basis, ... in Guzman y Gomez’s case it expects $3.4 million net profit in FY24 and $6 million next year (on a pro forma basis) – or about 370-times FY25 pro forma profit.

!
 
I have to say one thing though, they are run a lot better than their competitors in QLD, the quality and service of the product are quite high and much more expensive as well. Usually with places like KFC and Mc Donnies when they first open the service and quality are high and then it drops off to the garbage level, and you wouldn't feed the food to your dog. Always wondered about their profit margin as rice is quite cheap and makes up a good part of their burritos.
 

Is that Taco Bell?

@Dona Ferentes PE of 370, is pretty close to what Street Talk came up with.

This is gaining a lot of scrutiny in the media at the moment. 380 PE wouldn't pass the RIH dart club test.



“It is not only fundamentally wrong, it is inconsistent with normal practice for constructing earnings multiples or how a prospectus for a business like Dominos or Collins Food is valued or analysed,” said one prospective investor said on Monday.

“Anyone who understands valuation multiples knows that when EBITDA is presented excluding the costs of the leased stores – which their selection of EBITDA does because rent manifests primarily as Amortisation of the Right of Use Asset, and Interest on Lease Liabilities – then the enterprise value needs to include the debt associated with the leases,” another investor told this column.

So, that’s $210 million as at December 31, “and would, of course, be higher at June 30,” the investor said. “And much higher in 2025, which is, of course, the earnings they want the valuation based off.”

Fist bumps at TDM​

Actually, the treatment of the lease liability is in the prospectus. In the fine print. Is that disclosure enough to prevent the corporate regulator requesting a supplementary disclosure to give prospective investors a truer picture, fundies are asking.

It may also offer an insight into why New York-headquartered buyout giant Blackstone could not come to a deal to buy up Guzman y Gomez, as revealed by Street Talk.

Of course, value is in the eye of the beholder. But consider how expensive Guzman y Gomez would appear if it was more traditional when it came to metrics. That would be about 100-times EBIT. Or 380-times PE.

The float will see TDM go down from 33 per cent to 29.7 per cent of the register, while Guzman y Gomez’s founder, Steven Marks will fall from 11.2 per cent to 9.9 per cent. Barrenjoey will slide from 10.5 per cent to 9.6 per cent. The sell down will account for $42.5 million of the float’s $242.5 million proceeds.
 
Listing date20 June 2024 #
Company contact detailshttps://www.guzmanygomez.com.au/
Ph: 61 2 9191 0900
Principal ActivitiesRetail food and beverage sales and franchising
Issue PriceAUD 22.00
Issue TypeOrdinary Fully Paid Shares
Security codeGYG
Capital to be Raised$242,500,000
Expected offer close date14 June 2024
UnderwriterBarrenjoey Markets Pty Limited and Morgan Stanley Australia Securities Limited (Underwriters/Joint Lead Managers).

​

 
galumay said:
I really wonder who would buy shares in this? I guess ETFs & Superfunds are forced to due to tracking, but if you are not automated it makes no sense.
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it won't attract me , if the valuations mentioned in this thread are close to accurate

but then folks rushed into RFG at the start ( but i didn't )
 
GYG said the float proceeds will be used to fund growth, primarily expanding its restaurant network in Australia. It has “considerable” demand from existing pre-IPO shareholders for the shares, including Aware Super, Cooper Investors, Hyperion Asset Management, Firetrail Investments and QVG Capital.

There is no general public offer.
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phew. I'm not feeling obligated
 
Can you short an IPO?



Nevertheless, the float has proved predictably polarising, with the debate over the valuation of the business – set at 32.5 times earnings before interest, tax, depreciation and amortisation, or 38.2 times, depending on whether you exclude share-based compensation – hotter than a spicy burrito.

The debate over valuation will take on a different complexion as analysts start to examine the IPO. The first to initiate coverage on Guzman y Gomez, Morningstar’s Johannes Faul, has thrown a little more fuel on the fire by whacking a valuation of $15 a share on the company, far less than the $22 that the stock will be valued at under the IPO.

“To reach a valuation near the $22 offer price, we need to assume Guzman’s new-store economics persist well beyond a decade,” Faul writes. “But given that the emerging brand is still in growth mode, we are hesitant to fully bake in management’s 20-year store-count aspirations.”
 
And

whacking a valuation of $15 a share on the company, far less than the $22 that the stock will be valued at under the IPO
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now that's a haircut.
 
Anyone trying to calculate a valuation for a pre IPO business is showing they have no idea how to do valuations IMO. Its simply not possible.

This is a case where the only approach is narrative speculation.
 
galumay said:
Anyone trying to calculate a valuation for a pre IPO business is showing they have no idea how to do valuations IMO. Its simply not possible.

This is a case where the only approach is narrative speculation.
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and i speculate i will leave this alone ( even if it opens near $10 )

unlike say ART where i saw potential bounced nice and early and hit the exit button after it announced big plans to expand overseas,two months later
in @$1.01,out @ $1.25
 
My . Looking at inflation, household budgets et all coupled with the vagaries of fresh produce why would one feel obligated to participate plus, with some $40m of the IPO slated for the current s/holders, no wonder there is "considerable" internal demand!

From the ABC 5 Jun 2024 referring to the public listing IPO raising.
"About $40 million of that will go back to existing shareholders and management as a sort of reward for their efforts, so they'll get a nice payday," Mr Bassanese said.
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