The Guzman Y Gomez Ltd (ASX: GYG) share price has risen an impressive 46% since its first trading day in June after the initial public offering (IPO). After such a good start to ASX life, investors may be wondering if 2025 could be another exciting year.
The Mexican food business is looking to add hundreds of restaurants to Australia over the coming years, and FY25 will be part of that journey.
Before we get to how 2025 may go, the business has already told investors how it has performed in the first quarter of the 2025 financial year. Let's remind ourselves how FY25 has gone so far, and then we'll look at some projections.
FY25 first quarter trading update
GYG reported that in the first three months of FY25, its total network sales grew by 20.7% to $278.8 million, with comparable sales growth (excluding the US) of 8.7%. Total Australian network sales increased by 21.1%.
Pleasingly, the total number of Guzman y Gomez restaurants grew by 10.8%, or 22 locations, year over year to 226. This could be essential for Guzman y Gomez shares.
The company said its comparable sales growth had been above expectations, thanks to "strong delivery performance, successful execution of the 'clean is the new healthy' campaign and guest demand for value menu items."
Overall, GYG said it expects to meet its prospectus forecasts for FY25, including the opening of 31 new restaurants in Australia.
With the Mexican food business committed to meeting its prospectus forecasts, let's examine the company's guidance.
Forecasts for FY25
In its prospectus, the company forecasted that it would generate $428.2 million of revenue and $26.6 million of other revenue and income (which includes franchise marketing fee revenue and other costs recovered from franchisees).
Guzman y Gomez predicted it would generate $59.9 million of earnings before interest, tax, depreciation and amortisation (EBITDA) as well as $19.7 million of earnings before interest and tax (EBIT).
The Mexican food business also predicted it would generate $19.5 million of profit before tax and $6 million of net profit after tax (NPAT).
The investment bank Goldman Sachs is more optimistic than GYG about its potential financials for FY25, despite the Mexican food business forecasting strong double-digit growth across various revenue and most profit metrics.
Goldman Sachs suggests GYG could generate total revenue of $438.8 million (2.5% better than forecast), EBITDA of $65.3 million (9.1% better than forecast), $27.6 million of EBIT (39.9% better than forecast), and net profit of $14 million (133.6% better than forecast).
However, the broker has a sell rating on GYG shares for two reasons:
We consider Guzman to be a high quality QSR operator with multiple levers available to grow operations, as well as a high likelihood of exceeding FY25 prospectus forecasts. While we forecast top-line growth and margin expansion, the basis of our Sell thesis is centred on 1) an overly ambitious long-term store expansion profile that has no recent successful precedent in the Australian market; and 2) a stretched valuation that has inappropriately, in our view, been pegged to the highest growth US-peers without taking into consideration the market differences and risks associated with an aggressive store expansion. Separately we note an overhang exists with c.13% of total shares expected to be released from escrow in March 2025.
Goldman Sachs has a price target of $33.20 on Guzman y Gomez shares, implying a possible drop of almost 25% within a year compared to where it is today.
Time will tell whether the market is impressed by what GYG reports in 2025 or whether today's valuation is too spicy.
