As KFC and Taco Bell restaurant operator Collins Foods reports its interim results on Tuesday, it will be not just investors but also Guzman y Gomez advisers that will be watching.
A lot will be riding for bankers on the mooted 2024 float or sale of the Australian Mexican food chain Guzman y Gomez because the business is said to be worth $1.2bn, or $867m excluding debt, and they stand to make big fees if it proceeds.
Yet much depends on the state of the industry as to whether that sort of outcome is achievable.
Analysts at Macquarie Group, who have done some work on the Collins Foods rival Restaurant Brands (which like Collins Foods, operates KFC and Taco Bell outlets, but is listed in New Zealand as well as Australia) have signalled some caution over the state of the Quick Service Restaurant Industry.
However, they believe it’s holding up better than other parts of the consumer sector.
“We conclude that while spending in restaurants and cafés as a percentage of total spend is declining, the QSR category, while not immune, is likely to be more resilient as consumers trade down and existing customers remain loyal,” the analysts said in a research note.
Restaurant Brands has 376 stores, including 72 KFC Australia outlets and 109 in New Zealand and 75 in California.
The analysts said in a research note that they expected Restaurant Brands to deliver positive same store sales growth for Australia for the fourth quarter, albeit at a lower rate than seen over the first three quarters.
“Restaurant Brands Australia sales trend has been particularly robust over the first three quarters of the 2023 financial year.”
But after being the “shining light” over the first three quarters of the 2023 financial year, there was some anecdotal evidence that suggests that the Australian QSR sector revenues were slowing as the higher interest rate cycle bites and hits discretionary spending.
Analysts add that New Zealand sales, where Restaurant Brands predominantly operates, have been robust, although trending below Australia over the first three quarters of its financial year, reflecting the continued return to the office trend supporting sales in the central business district area in Australia, and return to full trading hours in Australia following a period impacted by staff shortages.
New Zealand still has some (mainly regional) stores not yet back to full trading hours.
October credit card spending data across the Tasman showed a continuation of the strong recent trend in QSR spending, with transactions increasing 8 per cent and value of total transactions increasing 13 per cent.
Should the QSR industry hold up robustly in the months ahead, as consumers trade down from more pricey restaurant dining, advisers Morgan Stanley and Barrenjoey could bring Guzman y Gomez to the market for an IPO or sale in the first half of next year.
Already, before even counting the state of the equity markets that makes a float tricky, many believe the most likely outcome for Guzman y Gomez is that it is sold to a US-based private equity firm, because there is buyer appetite in the sector there.
Barrenjoey bought an 11.6 per cent interest in the Guzman y Gomez business for up to $146m from joint venture partner Magellan last year, and other owners, including private equity firm TDM, will be angling for top dollar on the prospect of an earnings lift through US expansion.
Last year, sources said that the quick service restaurant chain was generating about $20m of earnings before interest and tax annually.
Similar companies have asking prices of about 15 to 20 times their earnings before interest, tax, depreciation or amortisation or about 26 times their net profit, in line with the listed trading multiples of rivals like Collins Foods.
US-listed Mexican chain Chipotle trades at about 20 times its net profit.
Guzman y Gomez has experienced rampant earnings growth after a successful rollout in the US market.
But there are market analysts cautious about calling its US rollout a success, with so far only one outlet in Illinois capitalising on the pandemic with drive-through service.
Guzman y Gomez has over 200 restaurants across Australia, Singapore, Japan and the US.
It was planning to float in 2020 or 2021 through Morgan Stanley, but the deal was later placed on hold.
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