by Mexican grocery chain Guzman Y Gomez has landed Australia’s biggest IPO in three years. The company’s shares rose by more than a third on its first day of trading on Thursday (June 20), sending an upbeat signal to investor sentiment. Shares in the Sydney startup opened at A$29.90 at 12pm local time, a 36% premium to the issue price of A$22, in a broadly flat market. They closed slightly higher at A$30. This is the biggest first-day gain by a major Australian company since 2021 and the third best for an IPO in the country in the past five years, according to Dealogic.
The company listed new shares worth A$335.1 million ($224 million), about one-sixth of its holding, for trading. The share price increase has boosted the company’s market capitalization to about A$3 billion from A$2.2 billion before its stock market debut. In its IPO prospectus, the company said it expects to post a second consecutive net loss in 2024 but a profit in 2025, and outlined plans to reach McDonald’s current number of Australian restaurants within 20 years. Guzman Y Gomez’s (GYG) initial public offering was private and involved the sale of shares primarily to existing lenders and franchisees.
Thursday’s gains signal a hopeful sign for overall sentiment after high interest rates and inflation dampened demand in 2022 and 2023. Australian share market prices have fallen after hitting record levels in 2021 as pandemic stimulus payments expire and the central bank raises interest rates to curb inflation. According to LSEG data, Australia has raised just A$98 million in initial public offerings through 2024, the second-lowest half-year in more than a decade. “This proves the adage that you can take good companies public in bad markets,” said Campbell Welch, an adviser to Novus Capital who led a small IPO for healthcare provider Freedom Care in November.
“It’s fully valued and a lot has to happen from now to justify that valuation.” The prospectus, filed in May, was buzzed about GYG’s target of opening at least 30 stores a year in Australia, up from its current 183 stores. It has only been achieved once, in 2023. It also mentioned the omission of lease liabilities and share-based payments in its profit forecasts. The company also has branches in Japan, Singapore and the United States. The company said its accounting treatment of expenses was unique to franchises. “Once listed, the market will price us every day and we will focus on what we can control: selling burritos and executing our strategy,” GYG founder and co-CEO Steven Marks said in a statement before the deal began. The company was not immediately available for comment.
The shares were previously valued at A$15 per share in a Morningstar client note. The company, which has 3.5% of the country’s fast-food market, has not established a competitive advantage that would justify rapid expansion, it said. Sebastian Evans, chief investment officer at NAOS Asset Management, said GYG’s low share price and ambitious growth profile could support the shares, given its name recognition among Australians. “We will be tracking the business, and have been tracking it for some time, but we believe the significant increase in store openings and the proposed geographic breakdown of these new stores increases execution risk,” Evans said.
