Sydney-based TAMIM warns investors to approach Guzman y Gomez’s $2.2b float with caution

Investors are being warned to approach the $2.2 billion float of Guzman y Gomez with caution and avoid “getting caught up in the frenzy” given the quick service restaurant’s lofty price tag.

Sydney-based TAMIM Asset Management said Guzman y Gomez’s rich valuation in comparison to other quick service restaurant players raised questions about whether the hype surrounding the offering was justified.

Announced last month, Guzman y Gomez plans to use its IPO to support its ambitious growth plans of more than 1000 stores in Australia. Shares have been offered at $22 a share and values the company at an eye-watering $2.2 billion.

Shares are expected to start full trading on June 25.

In a recent note to investors this week, TAMIM said the controversy around Guzman y Gomez’s treatment of lease liabilities — which could significantly understate its true leverage if properly accounted for — adds further uncertainty.

“History has shown that many high-profile IPOs struggle to live up to their lofty expectations once the initial excitement fades,” it said.

“Rather than getting caught up in the frenzy, prudent investors may be better served by waiting on the sidelines to see how GYG’s growth story unfolds as a public company.

“Only then can the true merits of the business be evaluated without the distortions of IPO pricing and promotions.”

TAMIM added a cautious “wait-and-see” approach could pay dividends for those seeking to invest in Guzman y Gomez for the long haul.

It comes after Morningstar analysts early this week questioned the value of Guzman y Gomez shares just two weeks ahead of its launch on the Australian Securities Exchange.

Analyst Johannes Faul told clients in a note that Guzman y Gomez was yet to develop an “economic moat” — how likely it can keep competitors at bay and allowing a company to sustain excess profits over a long period.

Guzman y Gomez already has 185 outlets in Australia, with about 120 owned by franchisees and 62 corporate-owned. Gobally, there are 16 in Singapore and five in Japan owned and operated by separate master franchisees and four corporate restaurants in the US.

It has a varied mix of store models — some featuring drive-thru ordering, others in suburban shopping strips as well as some in food courts and on university campuses.

The Mexican-themed restaurant chain plans to open another 30 restaurants in Australia in the 2025 financial year, with this number expected to grow to 40 a year within five years.