The Guzman Y Gomez Ltd (ASX: GYG) share price is an attractive opportunity after its latest result, according to the broker UBS.
The Mexican food business saw a share price 14% decline after its result, despite reporting a solid level of growth.
It reported that 14 more Australian restaurants were opened during the six-month period, helping network sales grow 18% to $681.8 million. Guzman Y Gomez's revenue increased 23% to $261.2 million, operating profit (EBITDA) climbed 29.6% to $40.9 million and net profit after tax (NPAT) increased 44.9% to $10.6 million.
The business decided to declare an interim dividend per share of 7.4 cents
After seeing those numbers, there were a few reasons why UBS upgraded its view on the Guzman Y Gomez share price.
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Strong growth outlook in Australia and the US
UBS says that GYG has "a very attractive growth outlook in Australia with multiple drivers".
Firstly, it's delivered mid-single-digit same-store sales (SSS) growth driven by menu innovation, customers visiting at more times of the day, renewed delivery growth and longer opening hours. The broker noted that the Mexican food business is investing in its systems to enable the rush to be handled.
Next, the company has significant restaurant network growth, which is forecast to grow from 224 in FY25 to more than 400 in FY30 and more than 600 in FY35 as it reaches towards a long-term ambition of 1,000 restaurants. The network growth is being enabled by investing in its property team and attractive franchisee store financials (with the median franchisee return on investment (ROI) being 48%).
Third, the operating profit (EBITDA) margin is expected to grow from 5.7% in FY26, to between 6% to 6.2% in FY26 and then grow towards 10% in the early 2030s. This is expected to be driven by a rising franchisee royalty rate, a lower general and administration (to sales) ratio and higher corporate restaurant margins. This could be a good tailwind for the Guzman Y Gomez share price.
The US opportunity is also interesting and currently has eight locations. It's expected to see a larger loss in FY26, which is gaining investor attention. But, GYG notes that customers are "positive" on the brand and food quality, as they were in Australia, though brand building is difficult and SSS growth has been "modest".
UBS points out that the US quick service restaurant (QSR) market is the largest globally and therefore attractive, though execution risk is high. The broker forecasts that the US average unit value (AUV) per restaurant could reach US$3 million by FY31, which is the "key requirement" to reach breakeven in the US and grow beyond its initial limit of 15.
Guzman Y Gomez share price valuation
Discussing the valuation, UBS wrote:
The valuation is more attractive following share price performance since Jan25 (-57%, vs XSO +19%) and the FY25 result (-26%, vs XSO +5%). GYG is trading at a FY26 EV/EBITDA (adj. – pre AASB2 & AASB16) multiple of 23x (including the loss-making US business) based on FactSet (consensus); this is below other high growth QSRs.
Based on the UBS profit forecast for the 2027 financial year, it's valued at 57x FY27's estimated earnings. UBS has a price target of $21 on the business, implying a possible rise of around 20% over the next year, at the time of writing.
