By T. Jayani, JadeTimes News
Shares of Guzman Y Gomez, an Australian Mexican restaurant chain, surged 36% on their first day of trading, marking the country’s largest initial public offering (IPO) this year. The stock opened at A$29.90, significantly higher than its issue price of A$22, amidst a stable overall market. By early afternoon, 3.1 million of the 100 million shares issued had traded.
The IPO raised A$335.1 million ($224 million) through the sale of new shares, representing about one sixth of the company. This increase in share price boosted Guzman Y Gomez's market capitalization to approximately A$3 billion, up from A$2.2 billion pre IPO.
In its prospectus, Guzman Y Gomez projected a second consecutive net loss in 2024, with a forecasted profit in 2025. The company also outlined an ambitious plan to match McDonald's Australian store count in 20 years. The IPO was closed to the public, primarily selling shares to existing financiers and franchise owners.
The successful debut comes as a positive indicator for investor sentiment, following a period of subdued IPO activity in Australia due to high interest rates and inflation. Australia's IPO market saw a sharp decline after the pandemic stimulus ended and the central bank increased rates to curb inflation. So far in 2024, only A$98 million has been raised in IPOs, marking the second lowest June half in over a decade, according to LSEG data.
Campbell Welch of Novus Capital remarked that the IPO demonstrates that high quality companies can still list successfully in a challenging market. He emphasized that the stock is now fully valued, requiring continued positive performance to sustain its valuation.
The prospectus, released in May, generated significant media attention, highlighting GYG's goal of opening at least 30 new stores annually, aiming to increase its current Australian store count from 183. The company’s omission of store lease liabilities and share based payments from earnings projections also drew scrutiny. GYG stated that its accounting practices were typical for franchise businesses.
GYG founder and co CEO Steven Marks expressed confidence in the company’s strategy, stating that the focus would remain on daily operations and strategy execution post IPO. Morningstar had previously valued the stock at A$15, citing concerns over the company’s competitive edge and its rapid expansion strategy.
Sebastian Evans of NAOS Asset Management noted that GYG's small share register and growth plans might support its stock, though he highlighted the execution risks associated with its aggressive expansion and geographic strategy.
The IPO’s success underscores investor confidence in Guzman Y Gomez’s business model and growth prospects, despite the broader market challenges.