GYG - ASX Small & Mid-Cap Conference

I have to admit, shares in Guzman y Gomez have done much better than I imagined post-IPO. It’s not that the company isn’t delivering great results, but the valuation just seems so full.

The company is trading at an eye-watering 11.7x sales based on its FY24 revenue of $342 million.

As a (very) rough exercise, let’s add 100 new stores in the next three years (basically what they’re aiming for) and assume the same average revenue per store. Now, existing stores will mature, there’s a mix of franchise and corporate revenue, fixed costs could (hopefully) further fractionalize, etc., etc., so as I said, this is rough...

But if you do the math, you get FY27 revenue of around $500 million, which implies a CAGR of 13%.

That’s quite a drop from the 30% growth they achieved last year. So, maybe if we extrapolate, we should assume $750 million in revenue? (That’s a lot of burritos!)

Let’s go with $700 million and assume they get a 20% net margin, roughly what McDonald’s achieves at scale. That gives us $140 million in NPAT.

Under these numbers, shares would need to be on a PE of around 30 in three years just for you to break even at current prices.

Who knows, maybe they’ll get 40% top-line growth, 30% net margins, and command a multiple of 40!? Entirely possible.

But, not to sound like a broken record, the asymmetry is not in your favor.

(As an aside, I can’t see people heading to a burrito shop for coffee, but who knows!)

Anyway, now I've doubled down on the bear case, watch shares shoot to the moon!

pubenvelope

Added 2 months ago

Hey SM,

Completely agree, as much as I love GYG I opted to stay away from the IPO as I don't see the value and have been burnt on newly listed companies before.. boy was I wrong.

Just a note on one of your last statements, I work in trades for a large organisation. A lot of my colleagues won't stop raving about GYG's breakfast burrito and quite often grab a cup of coffee with it in the mornings. I always see lines of cars in the drive through around the clock, and have noticed more and more GYG's getting built on the corners of busy intersections - wasn't that McDonalds play???

Remorhaz

Added 2 months ago

I was there in person for this today and one thing I can say for sure is Steven Marks doesn't lack for enthusiasm. I found it way too sales pitchy for me, but you can't dispute the results so far. Like Andrew I'm sitting on the sidelines (and will join him in watching the shares go to the moon :))

Strawman

Added 2 months ago

Ooh that is interesting @pubenvelope

I'm old enough to remember when Macca's starting McCafe and at the time thinking "that's way outside their circle of competence and how good can the coffee really be?"

Well, it's been a hit and even a coffee snob like me can admit the coffee is surprisingly decent! Better than a lot of cafes.

So there you go :)

I've not tried the breakfast burrito either. So I really shouldn't spout off about things I have no experience in! Haha

As a concept, a breakfast offering is very clever. You get to leverage your fixed store costs for a whole extra meal (servicing 3 meal times/day as opposed to 2 - a 50% increase).

thunderhead

Added 2 months ago

GYG has held up way better than I anticipated, but it is a bit too early in its public life to be popping the champagne corks. Broader market sentiment is in its favour too as we have been in a raging bull market barring a few isolated episodes of elevated volatility and brief corrections.

I would rather own CMG in the US, as it is a more established business with better unit economics, but it is pretty fully valued at current prices too.

Guzman y Gomez Limited

Guzman y Gomez Limited

Welcome Session

ASX Welcome

MC Introduction + House Keeping

Market Update - Bell Financials

Session 1

DroneShield Ltd

Emeco Holdings Ltd

Elsight Ltd

Aroa Biosurgery Ltd

Botanix Ltd

Morning Tea

Session 2 - Lightning Rounds

BCAL Diagnostics Ltd

Acrux Ltd

ECS Botanics Holdings Ltd

Microba Life Sciences Ltd

Close the Loop Ltd

Dropsuite Ltd

Lunch

Session 3

Generation Development Group Ltd

Tower Ltd

Findi Ltd

Praemium Ltd

Atturra Ltd

Afternoon Tea

Session 4

EROAD Ltd

Sayona Mining Ltd

dusk Group Ltd

Guzman Y Gomez Ltd

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Guzman y Gomez Limited

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