The Mexican-themed restaurant group’s IPO price could be $7 more than the company’s fair value, Morningstar analysts told their clients.
Guzman y Gomez is worth $7 a share less than the price it intends to list on the ASX, according to Morningstar, which has joined some Australian fund managers in suggesting the fast-food chain’s growth plans may be unrealistic.
He values the shares at $15, well below the $22 per-share initial public offer, saying rival ASX-listed fast-food chains Domino’s Pizza Enterprises and Collins Foods, which operates KFC stores in Australia, offer better value for investors.. That reflects an additional sell-down of $92.6 million by TDM Growth Partners, Guzman y Gomez’s largest investor. It will hold 26.2 per cent after the IPO.
Guzman y Gomez has big growth ambitions, as it aims to take its 185-store Australian network to 1000 stores over the next two decades. The IPO lands the company on an enterprise value to pro forma EBITDA multiple of 32.5 times, but this valuation has come under scrutiny.the fast-food chain could talk up its growth trajectory, while booking a multiple on a much larger 2025 earnings figure.
“The earnings multiples quoted in the prospectus are presented in a flattering manner with elevated multiple metrics relative to both domestic and offshore peers,” he said.“Despite the full valuation, there is the potential to see upside to the IPO price, but this is contingent on Guzman y Gomez executing on the store rollout program while maintaining the network economics over the long term.
Others are more bullish, citing the economics of the business’s drive-thru sites and growing land bank.
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