Hungry investors: Guzman y Gomez sizzles on ASX debut

The Mexican food chain had a roaring start to life on the ASX, stoking hopes the bumper float will enliven a largely dormant domestic market for sizeable listings.

Hilton Brett, left, and Steven Marks, co-CEOs of Guzman y Gomez.

Mexican food chain Guzman y Gomez’s roaring start to life on the ASX has stoked hopes the company’s bumper float will enliven a largely dormant domestic market for sizeable listings.

Guzman’s stock surged 36 per cent to end Thursday’s debut session at $30, eclipsing the company’s $22 per share issue price.

The limited offer size for the transaction ensured there was strong demand for the shares, which helped Guzman’s valuation top $3bn on Thursday from $2.2bn on listing. The stock largely traded between a range of $29.29 and $30.99.

Guzman, which opened its first store in Sydney in 2006, is known for its brekkie burritos and $3 tacos. The float is being closely watched as a litmus test in a soft market for ASX listings, with investment bankers hoping the transaction would inject confidence into equity capital markets and fatten the pipeline for floats.

Guzman’s initial public offering price delivered it a market capitalisation of $2.2bn, making it the largest company to list on the ASX since late 2021 on that measure. Employment group APM Human Services was the next largest on a market capitalisation basis and hit the local bourse in November 2021. The Guzman float is by far the biggest IPO on the ASX this year and the 18th largest in the past five years, ranked by the amount raised, according to data compiled by the London Stock Exchange Group.

This year, the second-largest IPO on the ASX was that of mining and infrastructure services company Tasmea, which raised just $59m.

While Guzman’s IPO performed well on Thursday it has still divided the investment community because of its hefty valuation, and fund managers are mindful of a mixed performance among ASX floats in 2024 and last year.

Tasmea’s shares were trading at $1.49 on Thursday, below an issue price of $1.56, while chemical distributor Redox’s stock is changing hands at $3.13 up from a 2023 offer price of $2.55.

Over the past five years the largest ASX floats ranked on the amount raised were that of Dalrymple Bay Infrastructure and property settlement group Pexa, LSEG data showed. The market for ASX listings was cruelled by the unravelling of Nuix’s float and a notable price gulf between the expectation of vendors and investors.

Those who backed Guzman’s sharemarket listing cheered the strong performance on Thursday and remain optimistic on the company’s prospects.

Eley Griffiths’ managing director Ben Griffiths, whose firm snapped up a small stake in GYG as part of the IPO, said the company had expansion runway given growth plans around its store network.

“We’ve seen what Domino’s can do, or what it did. It’s now suffering different pains of growth, and it’s got a bigger business to try and manage,” he said. “I believe there’s a big infill story in Australia (for GYG), no doubt about it. I believe there’s export opportunities as they’re underway with. I believe in some markets it’ll be harder than other markets.”

Mr Griffiths noted a wave of demand for the stock and a potential for GYG’s IPO to buoy the broader float market.

“We just knew there were massive bids for this deal,” he said.

“Every bull campaign needs an emblematic IPO to capture the imagination and somehow install some animal spirits.”

A fund manager, who declined to be named, was more cautious on GYG given Thursday’s sharp rally.

“It’s a good business but Thursday’s share price is already pricing in all the future upside from rolling out more stores, so there’s limited upside for new investors at this stage.”

The IPO offer size for Guzman was increased to $335.1m earlier this month from $242.5m, which reflected an additional sell down and strong demand that left the offer heavily oversubscribed. The increase accommodated a commitment from Capital Research Global Investors to subscribe for shares.

To facilitate Capital Research Global Investors’ investment, TDM Growth Partners sold down a portion of its stake, but still holds 26.2 per cent.

“What a journey and what a huge milestone for all of us,” said Steven Marks, a GYG founder and co-chief executive, at the company’s listing event on Thursday. The listing ceremony in Sydney was attended by ASX CEO Helen Lofthouse and a swarm of GYG staff, many of whom were dressed in their black and yellow hoodies.

Following the IPO the GYG board – led by former McDonald’s executive Guy Russo – senior management and existing substantial shareholders, represent about 59 per cent of GYG’s issued capital on a fully-diluted basis.

Still, Guzman’s accounting of interest income and leases, its aggressive store rollout plan and generous valuation are being closely scrutinised.

The company listed at an enterprise value to 2025 proforma-earnings multiple of 32.6 times.

Guzman wants to grow its network of 185 restaurants in Australia to more than 1000 restaurants over the next two decades. Its prospectus flagged the opening of 30 restaurants in financial year 2025. While the bulk of the company’s corporate and franchised stores are in Australia, it has 16 in Singapore, five in Japan and four in the US.

Asked about GYG’s local store opening plans, in the face of another possible Reserve Bank rate rise this year, Mr Marks said: “The thing about having a pipeline is they’re already locked in. So the stores we are approving now open up in two and a half years. So we’ve been building this triple-A drive through pipeline since 2015.”

The value of Mr Marks’ stake in the company swelled to $264m on Thursday, while Mr Russo’s holding increased to $182m.

Mr Marks is joint CEO alongside Hilton Brett. The pair on Thursday said they believed the co-leadership model would work for GYG in a listed setting, despite it not lasting at other companies, including Prospa and Pendal.

It’s been a big year for GYG. In April, the food chain ­attracted new institutional investors – Cooper Investors, ­Hyperion Asset Management, Firetrail Investments and QVG Capital – in a liquidity round that delivered it a $1.73bn ­valuation.

Fund managers who hold the stock will closely monitor Guzman’s growth trajectory and how its listed and unlisted are faring.

Citigroup has highlighted Taco Bell as showing promising signs for Collins Food ahead of its full-year results next week, even as the broker warned the parent company faced pressures in the near term from wage increases and cost of living rises.

The listing of Mediterranean restaurant chain CAVA last year in the US was a test of investor appetite for fast-growing companies that are unprofitable, and investors will be tracking the statutory loss-making GYG with interest.