Time is ticking down to one of the biggest initial public offerings (IPOs) the ASX has seen in years. Tomorrow, Guzman y Gomez shares will join the ASX boards, giving all Australian investors the opportunity to buy shares in this Mexican-themed fast food chain.
As we've covered extensively here at the Fool, Guzman's ASX IPO has been long in the making. After years of rumours, the company will make its ASX debut tomorrow when its shares begin trading on the public markets on a deferred settlement basis from midday – 11.1 million Guzman shares, to be precise.
Yep, the company hopes to float 11.1 million shares on the ASX, with an IPO price of $22 a pop. If all goes to plan, that would value the business at around $2.2 billion. The restaurant chain's ticker code is set to be the easily-memorable GYG.
As we've also covered this month, this valuation could be described as 'optimistic'. My Fool colleague James recently went through the views of Tamim Asset Management's Ron Shamgar. There was an extract of what the fund manager had to say on Guzman's "eye-watering" $22 IPO price:
The IPO values GYG at an enterprise value to operating earnings multiple of 32.5 times, significantly higher than Domino's Pizza at around 18 times and Collins Foods Limited at just over 14 times…
While GYG's growth ambitions are impressive, investors would be wise to approach this IPO with caution. The rich valuation in comparison to other QSR players raises questions about whether the hype surrounding the offering is justified…
History has shown that many high-profile IPOs struggle to live up to their lofty expectations once the initial excitement fades. 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.
Image source: Getty Images
Guzman y Gomez shares primed for ASX IPO
This is notable. If Guzman does command a market capitalisation of $2.2 billion, it would slide right between KFC operator Collins Foods Ltd (ASX: CKF) and Domino's Pizza Enterprises Ltd (ASX: DMP). Domino's and Collins Foods currently boast market caps of $1.09 billion and $3.3 billion respectively.
Interestingly, when Collins Foods debuted on the ASX boards back in 2011, it floated at a stock price of $2.50. But only a few months later, early investors were nursing a nasty burn when the company fell down to less than $1.20 per share.
Of course, those who held on have done well, given that Collins Foods stock was asking $9.26 at Wednesday's close. But no doubt, those investors who buy Guzman shares when they list on the ASX will be hoping for a different outcome.
Potential Guzman investors might find confidence in the fact that management and the company's largest investors will be in their bunker, financially speaking. Even after Guzman's IPO, senior management (including founder Steven Marks) and existing substantial investors will still hold 62% of the company's outstanding stock.
No doubt these big fish will be the ones watching tomorrow's Guzman IPO with the most anticipation. Let's see how it goes.
