Goldman Sachs tells investors to ditch Guzman Y Gomez for KFC operator Collins Foods
A prominent analyst has favoured major Australian KFC and Taco Bell operator Collins Foods over newly-listed Guzman Y Gomez, telling investors to sell their shares in the Mexican-themed restaurant chain.
Goldman Sachs analyst Elijah Mayr has initiated a sell rating on GYG, citing the fast food chain’s “overly ambitious long-term store expansion profile that has no recent successful precedent in the Australian market” among his concerns.
The company — set up in 2006 in Sydney’s inner west by two New Yorker friends Steven Marks and Robert Hazan — is aspiring to have 1000 outlets in Australia in the next 20 years.
Sign up to The Nightly's newsletters.
Get the first look at the digital newspaper, curated daily stories and breaking headlines delivered to your inbox.
By continuing you agree to our Terms and Privacy Policy.Today, GYG operates more than 200 outlets across Australia, Singapore, Japan, and the US, and in a variety of formats: at universities, in food courts and drive-throughs.
“(The) stretched valuation has, inappropriately in our view, been pegged to the highest growth US-peers without taking into consideration the market differences and risks associated with an accelerated store expansion,” Mr Mayr told investors in a note on Thursday.
His price target for GYG shares sits at $33.20, with the stock down 4.8 per cent to $37.47 at 11.30am.
Meanwhile, Mr Mayr said the outlook for Collins Foods was “incrementally more positive” and initiated a buy rating.
“Our buy thesis centred on a moderation of cost growth with wages, poultry, electricity and rent growth moderating, while oils and grains have returned to pre-COVID levels,” he said.
Mr Mayr is also encouraged by improved discretionary spending in Collins Foods’ key states of Queensland and WA.
It operates a total of 279 KFC and 27 Taco Bell stores across Australia.
Other major analysts have also cast their doubts on GYG’s prospects.
“Guzman looks expensive. We think the market takes a different view on Guzman’s long-run prospects — namely, how long the company can keep building stores that generate excess returns,” Morningstar analyst Johannes Faul told clients after the chain’s ASX debut in June.
