Should you buy, hold or sell Guzman y Gomez shares?


Founded in 2005, Guzman y Gomez (GYG) is one of Australia's fastest growing quick service restaurant (QSR) businesses.

They deliver customers made-to-order, Mexican-inspired food across multiple sales channels, restaurant formats and dayparts. Their primary addressable market of Australia is large (estimated $25 billion), where they currently have a mix of 185 corporate and franchised outlets delivering $340 million of revenue.

QSR competitors include McDonalds, KFC and Subway at the more mature end with around 1000 outlets each, and think Zambrero, Grill'd, Betty's Burgers and Sushi Hub on the emerging side with anywhere between 50-250 outlets.

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The company has a relatively nascent presence in Singapore (16 stores), Japan (five stores) and USA (four stores).

Strategy and outlook

The food-away-from-home market has grown around around 7% compound annual growth rate (CAGR) over the past 40 years driven by such secular trends as convenience, changes in lifestyle and population growth.

Meanwhile, GYG's market share in Australia is estimated at 3.5%, suggesting plenty of room to grow share if they can execute well.

Their guest segmentation is skewed to the younger demographic of 18-34yo and their average spend per transaction is higher than the QSR average, potentially hinting at a more affluent consumer.

GYG's is currently rolling out about 30 new stores a year, with the intention to lift this to 40 in the near term as part of an ambitious growth target of 1000 stores over the next 20+ years (~9% store growth CAGR).

Australian QSR net restaurant openings by brand (CY23)
Australian quick service restaurant (QSR) net restaurant openings by brand (CY23). Source: Guzman y Gomez.

The hybrid operating model of corporate and franchised owned and operated stores enables GYG to realise the benefits of both operating models.

Corporate stores can serve as a brand and performance benchmark for the wider network, with greater control over consistency customer experience. However, this is more capital intensive.

Franchising enables GYG to enter new markets in a capital-light and lower risk manner, however the GYG corporate does assume the head lease on the premises.

Franchisees pay an upfront fee and ongoing tiered royalty fees and other charges.

Median franchise ROI of >50%, points to strong profitability in the network currently, however these are expected to reduce as GYG plans to increase their franchise royalty margin to >10% (from 7.8% in FY24F).

Large QSR royalty margins tend to be in the rang of 5-7% of sales, and as more stores are rolled out, we would expect stores ROI to naturally come down due to competition. Thus, a strategy of increasing franchise fees is not without some risk.


Like-for-like (LFL) sales growth at GYG has been strong for the past several years (figure 2), with a softening in growth rates in key contributing dayparts over the past 18 months.

The company has forecast like-for-like sales growth of 7.4% in FY24F and 4.8% in FY25F, a continuation of the slowdown trajectory as the company cycles a more challenging comparative period.

This leads to a strong total Australian network sales growth forecast up 27% in FY24 and up 19% in FY25 which is inclusive of new store openings. The overseas parts of the business are forecast to grow faster, but they're relatively small contributors at this stage.

GYG Comp Sales Growth by daypart
GYG comparable sales growth by daypart. Source: Guzman y Gomez.

Given vendors of GYG stock in its recent Initial Public Offering (IPO) sold a relatively small amount (10.7%), they clearly see a strong and lengthy runway of growth for the business.

Given some of the disclosures in the prospectus, we have decided to normalise both earnings before interest, taxes, depreciation, and amortisation (EBITDA) and the Enterprise Value of GYG for the AASB impact of leases and adjust for share based payments in order to get a more apples for apples trading multiple.

At 43.4x FY25 EBITDA, we would argue the stock was floated on a relatively full valuation, especially compared to the global peer group (figure 3).

As a result, investors would likely be anticipating upside to revenue and earnings within the forecast prospectus period, in our view.

This could come from a number of areas, such as stronger LFL sales growth, faster store rollout or stronger franchisee margin contribution. However, ability to ascertain whether all or any of these are likely is challenging within relatively short IPO window period and limited access to management.

EV/EBITDA Multiples and Growth of Global QSRs
EV/EBITDA multiples and growth of global quick service restaurants (QSRs). Source: Guzman y Gomez, Visible Alpha.


At market close on its first day of trading, June 20, GYG traded at $30 per share, representing an EV/EBITDA multiple of 67x FY25, or a P/E of 507x.

Adjusting these multiples for forecast growth and GYG trades at close to that of Chipotle, which has a proven growth strategy in the more lucrative US market and thus we see overly optimistic outcomes being priced in.

This thesis is supported by our discounted cash flow analysis, which can only achieve the IPO price of $22 when factoring in double digit EBITDA growth for over a decade and mid-high single digit growth into perpetuity thereafter.

Whilst we see the share price being supported in the short-term by liquidity constraints and supply-demand dynamics, we cannot justify an investment case at these levels given our base-case assumptions and thus rate it as a hold.

We remind ourselves of Graham's infamous idiom 'in the short run, the market is a voting machine but in the long run, it is a weighing machine'.

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Simon Brown is an investment analyst at Tribeca Investment Partners. He is co-portfolio manager of the Tribeca Smaller Companies Strategy. Simon has a Graduate Diploma in Applied Finance and Investment from the Financial Services Institute of Australia. He also has a Bachelor of Arts degree majoring in Government and Business and Modern History from the University of Sydney.