Asia’s answer to Chipotle is now a $1.5 billion public company

• Restaurant chain Guzman y Gomez went public in Australia, raising $162 million.

• Thursday’s IPO is Australia’s largest in nearly a year, with shares up 36% from the offer price.

• Funds will fuel GYG’s plan to expand to 1,000 outlets in Australia over the next 20 years.

Asia’s version of Chipotle — a Mexican fast-casual chain called Guzman y Gomez — just went public in Australia.

Shares of the quick-service restaurant began trading on the Australian Securities Exchange on Thursday. The initial public offering brings GYG’s valuation to 2.2 billion Australian dollars, or $1.47 billion.

The IPO is Australia’s biggest in nearly a year. The Sydney-based chain sought to raise about $162 million, or about one-sixth of the company’s value, through the limited-sale offering.

In the first few hours after trading, the company’s shares climbed 36% from the offer price of about $15.

According to GYG’s prospectus, the company will use the money to expand to more than 1,000 outlets in Australia over the next two decades. McDonald’s and Subway have about 970 and 1220 restaurants in Australia, respectively.

GYG was founded by a former hedge fund trader, Steven Marks, in Sydney in 2005. It now has 185 restaurants in Australia, 17 in Singapore, five in Japan, and four in the US. The company said it notched $506 million in sales last year.

“We are still early in our mission to reinvent fast food and change the way the masses eat,” Marks said in a statement to Business Insider.

In comparison, Chipotle has 3,400 restaurants across North America and Europe. The US-based Mexican fast food chain is valued at $94 billion and posted a revenue of nearly $10 billion last year. Chipotle owns and operates all of its restaurants, unlike GYG, which follows a franchise model. Franchisors make money from an annual licensing fee and take a percentage of the location’s revenue.

Mixed analyst sentiment

Despite the chain’s growth in the last two decades, some analysts are bearish.

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In a Wednesday note before the IPO, Morningstar analysts valued the stock at 15 Australian dollars a share. They said that the offer price of 22 Australian dollars was expensive, given that GYG is at a far earlier stage than heavyweight competitors like McDonald’s and Domino’s. And they’re not sure GYG can follow through on its plan to open 1,000 stores.

GYG is backed by TDM Growth Partners, Barrenjoey Private Capital, Aware Super, Cooper Investors, Hyperion Asset Management, Firetrail Investments, and QVG Capital.

“The company and its highly conflicted investors and advisors have decided that A$2.2 billion is a reasonable valuation of this business,” Michael Hutchens, the founder of financial modeling company Modano, wrote in a post on LinkedIn.

“This is irrespective of fact that it is struggling to make money and would in fact have gone broke over the past year if it didn’t quietly do a pre-IPO raising of A$135 million,” Hutchens wrote.

GYG joins 11 other companies that have listed on the ASX so far this year. The ASX has seen a big slowdown in IPOs in the last few years as pandemic stimulus payments ended and the central bank raised interest rates to calm inflation. The number of floats in 2023 was 45, compared to 107 in 2022 and a record 241 listings in 2021.

GYG’s shares are not open to the general public. They are only available to institutional investors, eligible employees and franchise holders, and retail clients of brokerages who have been allocated GYG shares, the company said in a pre-IPO release.

Read the original article on Business Insider