The Guzman y Gomez restaurant in Macarthur Square, Sydney. Picture: Contributed

It’s easy to sound smart by being gloomy about the future of a stock, but the future of this Mexican-themed chain is positive.

Key Highlights 

• Guzman y Gomez is set to IPO at a valuation of $2.2 billion,
• Plan to add 30 stores by the end of 2025, which will certainly boost revenues from an estimated $339 million by June 30, 2025,
• Leadership communication driven by “clean is the new healthy”
  

Are we optimistic or bearish about the future of an IPO like Guzman y Gomez? Guzman y Gomez’s IPO is valued at $2.2 billion, raising some important questions across private equity circles. Although there is consolation that its underwriters – Morgan Stanley and Barrenjoey – have pulled in some big names, it seems envy is brewing across private equity circles. It is, nonetheless, important to see what market bigwigs are saying about the chain’s prospects, the quality of the leadership, and the forecast for the coming decade. Let’s dive in.

Although much has been said by Morningstar, they forgot to mention that other ASX-listed companies like Domino’s and Collins Foods don’t own their brand – they are master franchisees of a specific part of the globe. Guzman y Gomez own everything, from brand, IP, recipes, and systems.

It is easy to be smart and seem gloomy about a stock and be useful by preventing irrational investors from giving into disaster, that is what bears do. However, the future of Guzman y Gomez will be positive, possibly outstripping expectations by a long margin. Like most good venture capitalist, any company’s success is driven by its leadership team. 

Strong Leadership to Steer the Ship

Steve Mark, the company's founder and CEO, was born in the United States. He has an optimistic demeanour that propels the company’s corporate culture forward as seen in its branding which emphasises “clean is the new healthy” and its policy includes involving staff in fundraising events for Misión México, an Australian-founded charity that assists young people in Tapachula, Mexico, in breaking the cycle of poverty.

Steven Marks, founder and co-chief executive officer of Guzman y Gomez. Oscar Colmannormal

Marks underpins this culture with a clear communication style that articulates the company’s growth strategy for all stakeholders, especially investors. This approach has successfully pulled in Capital Research Global Investors, which own stakes in Chipotle, Yum! Brands and Mediterranean food chain Cava. Other industry bigwigs include Matthew Grounds at Barrenjoey, Aware Super, Cooper Investors, Hyperion, Firetrail, and QVG.

The product is the best quick-service restaurant chain in Australia. When my daughters and I go out for fast food, they usually prefer Guzman y Gomez over McDonald’s or KFC. They might be too young to be stock analysts, but they certainly reflect the desire for a better offering from market incumbents.

Furthermore, the franchise works and the stores make a lot of money (second to McDonald’s). We should remember that sales revenues have risen consistently over the past 10 years and so if growth underperforms for 2025, the stock will still do well.

Burritos Set To Do Well

Chipotle has a market capitalisation of $136 billion, which should make you question which one has the highest probability of going up 2x or 5x, or 10x? I know which one I would own. Additionally, Guzman y Gomez tastes better than Chipotle, which is probably why Capital Research Group Investors, who are large investors in Chipotle, are coming into Guzman y Gomez.

Marks’ short-term goals are modest at best even as the IPO prospectus forecasts for FY25 show they plan to add 30 stores by the end of 2025, which will certainly boost revenues from an estimated $339 million by June 30, 2025, to $428 million, at a growth rate of 37.6 percent. However, its EBITDA is forecast to grow slightly faster, at 39.3 per cent, which means it will likely beat its 2025 forecasts.

Meanwhile, passive money plays an important role in the ASX. In Australia, it is dominated by the S&P/ASX 200. Once escrowed shares are released – 30 percent of the register will have to be held by passive index funds, boosting its market capitalization. The market has its machinations of funds trading around the passive index funds, which is another reason why Guzman y Gomez is an important ASX arrival.

Success for Guzman y Gomez is almost certain and if you take a medium-term view, the price of the IPO is less important. If Guzman y Gomez meet or exceed their FY25 results, then it will certainly be a recipe for high growth over the long run.

Martin Rogers is a venture capitalist and the chief investment officer of the Defender Ventures Innovation Fund. He is a Guzman y Gomez shareholder.