MCD
In an undeniable testament to investor enthusiasm, Guzman Y Gomez (Australia's national treasure in Mexican cuisine) marked its debut in the Australian Stock Exchange with a bang, achieving the most impressive IPO performance the country has seen in years. Specifically, on its first trading day, the shares launched into the market at AUS$29.90, a remarkable 36% rise from the AUS$22 issue price, an indication that investors have an insatiable appetite for more than just burritos.
Concluding their stellar debut at AUS$30, Guzman Y Gomez's (ASX: GYG) performance did more than just turn heads; it provided a much-needed pulse check for the Australian market, which has seen a dampened listing scene recently. The firm floated AUS$335.1 million (USD$224 million) worth of stock, lifting its market capitalization from AUS$2.2 billion pre-IPO to a solid AUS$3 billion.
Notably, this launch was Australia's most significant since 2021, only making it the third-best performing IPO in the past half-decade. While listing to public investors remained off-menu, existing financiers and franchise owners got a hearty serving of stock, suggesting that confidence in the brand from within is strong.
Guzman Y Gomez's prospectus, filed earlier in May, forecasted another net loss for 2024 but painted a rosy picture for profitability by 2025. The company's bold 20-year plan to match McDonald's (NYSE: MCD) current store count in Australia certainly adds some spicy ambition to their growth burrito. However, their ideal store rollout strategy - 30 new openings annually from their current 183 - sounds quite a mouthful given they've only hit this mark once, in 2023.
The 36% price surge seen on their first day sends a positive signal about broader market sentiment, a welcome sight after the IPO desert of the past two years. The Australian IPO scene, after peaking in 2021, had gone rather dry as high interest rates and inflation took their toll. In the first half of 2024 alone, the country only raised AUS$98 million in IPOs, a serious decline from previous heights.
Campbell Welch, an adviser at Novus Capital, which ran a small IPO for Freedom Care last November, summarized it succinctly: "It proves the adage that you can list a good company even in a bad market." Nevertheless, he added a cautionary note on valuation, suggesting that the bar is now set high for GYG.
While Morningstar valued Guzman Y Gomez at a modest AUS$15 a share, their target represents just 3.5% of Australia's fast food market, raising questions about the competitive edge needed for rapid expansion. Similarly, NAOS Asset Management's chief investment officer, Sebastian Evans, highlighted the risk factors associated with the company's ambitious store rollout and geographic expansion plans. However, he acknowledged that GYG's local familiarity might serve it well on the stock market.
Guzman Y Gomez founder and co-CEO Steven Marks encapsulated the company's focus succinctly: "Once we're listed, the market will price us every day and our focus will be on the things we can control: selling burritos and delivering on our strategy.” With investments and investor confidence riding high, the stock market will indeed be watching to see if Guzman Y Gomez can deliver spice not just in their culinary offerings but in their market performance as well.
