The Guzman y Gomez Limited (ASX: GYG) share price has jumped 36% to $30 on opening after its initial public offering (IPO).
GYG lists onto the ASX
The Mexican food chain has arrived onto the ASX boards to much fanfare and shareholders have already made some spicy returns. The IPO price was $22 and the GYG share price is currently $30.
It’s perhaps unsurprising considering it has soared on arrival – there was no general public offer, new shares were being sold to brokers, employees, franchisees, institutions and certain other investors. There are not many shares for the public to buy, and existing large shareholders don’t need to sell. There’s an imbalance of supply and demand in early trading.
Growth plans
In FY15, Guzman y Gomez generated $101 million of global network sales and this grew at a compound annual growth rate (CAGR) of 29% to reach $759 million in FY23. GYG has projected that global sales can reach $954.4 million in FY24 and $1.14 billion in FY25.
While underlying EBITDA is not the best profit measure, the Mexican food business has suggested it can grow from $29.3 million in FY23 to $59.9 million in FY25. A rise of 50% of global network sales could lead to a 104% rise of operating profit, which suggests improving profit margins – a promising sign.
It currently has 185 locations in Australia with 62 corporate outlets and 123 franchise outlets. It also has four corporate outlets in the US, a huge market with a lot of potential if GYG can get it right there.
The food company receives upfront fees and ongoing sales royalties from franchisees.
Guzman y Gomez also has master franchisee agreements in Singapore and Japan, where it has 16 and five restaurants, respectively.
GYG is planning to open 30 new restaurants in FY25 in Australia, which is 16% of the current network size. It aims to grow its annual openings to 40 within five years. GYG reckons it can get to 1,000 locations in Australia in 20 or so years.
Final thoughts on the GYG share price
As Owen pointed out recently, the $22 listing price wasn’t cheap and $30 is a lot more expensive!
I think the business has a lot of long-term promise, so I wouldn’t be surprised if I bought Guzman y Gomez shares at some point in the future. But, I wouldn’t buy at any price – it’s a food business, not a software business. Fast food is a competitive market in Australia, the US and around the world. It’ll be facing off against brands like Taco Bell, McDonalds, Chipotle and KFC to deliver the growth it hopes for.
