WEBVTT - Would you invest in a burrito?

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<v Speaker 1>Already and this is the Daily This is the Daily

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<v Speaker 1>ohs oh, now it makes sense.

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<v Speaker 2>Good morning and welcome to the Daily OS. It's Friday,

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<v Speaker 2>the twenty first of June.

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<v Speaker 3>I'm Sam, I'm Billy.

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<v Speaker 2>In one of the biggest launches of a new company

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<v Speaker 2>on the Australian Stock Exchange or the AX in years.

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<v Speaker 2>Thousands of Australians have snapped up shares in Guzmany Gomez,

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<v Speaker 2>the rapidly expanding Mexican fast food chain. And for anyone

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<v Speaker 2>who feels like this is a bit of a different language,

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<v Speaker 2>don't worry. This podcast episode is going to be just

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<v Speaker 2>for you. The ASX is where Australians are able to

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<v Speaker 2>buy and sell shares of companies that have decided to

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<v Speaker 2>be publicly listed instead of privately held. So what does

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<v Speaker 2>that actually mean? And perhaps most importantly, will this change

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<v Speaker 2>the structural integrity of my burrito? On today's podcast, I'll

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<v Speaker 2>be joined by Maddie Guest. She's the host of finance

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<v Speaker 2>podcast You're in Good Company, and she's going to help

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<v Speaker 2>us break this all down quicker than you can polish

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<v Speaker 2>off at Cassadia. But first, Billy, what is making headlines

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<v Speaker 2>this morning?

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<v Speaker 1>The energy market operator has called an emergency meeting over

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<v Speaker 1>concerns of a gas shortage in Australia's southeast. It comes

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<v Speaker 1>after record breaking cold temperatures in parts of the country

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<v Speaker 1>This week. The Australian Energy Market Operator warned Quote the

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<v Speaker 1>supply of gas in all or part of the East

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<v Speaker 1>Coast Gas system might not see New South Wales, the Act, Victoria,

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<v Speaker 1>South Australia and Tasmania through winter. It has asked Queensland

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<v Speaker 1>gas producers to quote maximize production.

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<v Speaker 2>The Telecommunications Watchdogs says the twenty twenty two Opta cyber attack,

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<v Speaker 2>which saw millions of customer details leaked, was preventable. The

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<v Speaker 2>Australian Communications and Media Authority or AKMA, has filed a

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<v Speaker 2>submission in the Federal Court alleging the leak was due

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<v Speaker 2>to a quote coding error from September twenty eighteen. AKMA

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<v Speaker 2>said optors failed to address the issue, leaving them quote

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<v Speaker 2>vulnerable to attack. The telco has previously rejected claims it

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<v Speaker 2>failed to protect customer's personal information and said it would

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<v Speaker 2>defend itself against akma's legal action.

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<v Speaker 1>Australia will send two million dollars in aid to Papua

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<v Speaker 1>New Guinea as it continues its recovery efforts from last

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<v Speaker 1>month's deadly land sides. Hundreds of people in a remote

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<v Speaker 1>village in p Andng's Anger Province were killed in the

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<v Speaker 1>natural disaster. The federal government funding will go towards restoring

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<v Speaker 1>a major highway in the region, as well as health services.

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<v Speaker 2>And today's good news is just for back pain sufferers.

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<v Speaker 2>I just literally just felt myself sit up straighter. Australian

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<v Speaker 2>researchers have found walking three times a week can decrease

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<v Speaker 2>back pain. Macquarie University's Spinal Pain Research Group led a

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<v Speaker 2>first of its kind trial with over seven hundred participants

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<v Speaker 2>over one to three years. It found adults with a

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<v Speaker 2>history of lower back pain were less likely to experience

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<v Speaker 2>recurring discomfort if they walked regularly. Maddy Guest from your

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<v Speaker 2>in Good Company joining us in the studio this morning. Maddie,

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<v Speaker 2>so good to have you here.

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<v Speaker 3>Thanks for having me Sam.

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<v Speaker 2>I wanted to talk to you this morning about Burritos

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<v Speaker 2>Mexican food, and the reason why is because guzmin N

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<v Speaker 2>Gomez has just floated on the ASX. It's been listed

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<v Speaker 2>and it had an incredible day as its first date.

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<v Speaker 2>It's now worth over three billion dollars. What do we

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<v Speaker 2>know about this company?

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<v Speaker 4>The biggest reason Sam why I love investing is because

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<v Speaker 4>you get to dig into the stories behind the companies

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<v Speaker 4>that are on the Stock Exchange. And when we look

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<v Speaker 4>at fast Food and guzmani Gomez in particular, it is

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<v Speaker 4>all down to the man behind the business, a founder

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<v Speaker 4>called Stephen Marx.

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<v Speaker 3>So he grew up in New York. He had talks.

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<v Speaker 4>About how he had quite a tough, I guess upbringing.

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<v Speaker 4>He had a drug addict dad, he had a brother

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<v Speaker 4>who was legally blind, and he worked really hard, got

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<v Speaker 4>a job in a hedge fund at the age of

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<v Speaker 4>twenty three, and then at the age of thirty he

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<v Speaker 4>was burnt out and so he decided to move out

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<v Speaker 4>to Australia. Not an uncommon story, No, and decided to

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<v Speaker 4>move out to Australia. And what was missing when he

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<v Speaker 4>moved out here It was Mexican food well, and so

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<v Speaker 4>he started the business with a friend of his, also

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<v Speaker 4>from the US, who had moved out here with an

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<v Speaker 4>Ozzie that they had fallen in love with, another classic story.

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<v Speaker 4>And so they bought out chefs from Mexico and they

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<v Speaker 4>opened their first restaurant in Newtown in two thousand and six,

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<v Speaker 4>closely followed by a Bondai junction, and today they have

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<v Speaker 4>more than one hundred and thirty stores.

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<v Speaker 2>And they're looking to have now over one thousand stores.

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<v Speaker 2>It's really interesting you mentioned that point about them bringing

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<v Speaker 2>out chefs. There's been sustained criticism of the company since

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<v Speaker 2>then for not being fully owned by people from Mexico

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<v Speaker 2>and there being a sense of cultural appropriation in the

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<v Speaker 2>way that they present the business. They pushed back and

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<v Speaker 2>said that there's really strong connections back to Mexico, and

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<v Speaker 2>the founder, albeit from New York, you know, is proud

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<v Speaker 2>of the company that he's built, clearly, and now it's

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<v Speaker 2>gone from being a private company to a public company.

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<v Speaker 2>Before we get back to the business itself, what does

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<v Speaker 2>that actually mean.

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<v Speaker 4>So when a company is private, it is owned by

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<v Speaker 4>a small number investors. It might be the founders, it

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<v Speaker 4>might be high networth individuals, private equity or even large

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<v Speaker 4>institutional investors. But when a company goes public that means

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<v Speaker 4>it lists on the stock exchange. So for example, in

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<v Speaker 4>Australia we have the ASX and that's exactly what Goods

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<v Speaker 4>Minigomez has done.

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<v Speaker 2>So then what would the reasons be for the company

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<v Speaker 2>to take that step from a privately held company to

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<v Speaker 2>a public one.

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<v Speaker 4>I think the biggest reason would be accessed more capital.

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<v Speaker 2>And so when capital you mean money.

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<v Speaker 4>Yeah, So when you list on the stock exchange, every day,

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<v Speaker 4>people are able to buy and sell shares in the company,

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<v Speaker 4>and as a result, that company is able to raise

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<v Speaker 4>more money to do more things. And so in this case,

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<v Speaker 4>a big part of the growth story for guzmni Gomez

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<v Speaker 4>is expansion. They want to get more stores on the

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<v Speaker 4>flip side. When a company goes public, they are subject

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<v Speaker 4>to a lot more regulation, and so they have to

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<v Speaker 4>report their financials at least half yearly, and I guess

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<v Speaker 4>they're going to be under the eyes of investors. So

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<v Speaker 4>people are going to be asking what is driving their

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<v Speaker 4>financial performance and if it's not good, why is that?

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<v Speaker 3>Just under more pressure?

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<v Speaker 2>In general from an actual company perspective, Sure, they get

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<v Speaker 2>more cash, but does anything actually change about how they run?

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<v Speaker 4>When you go public on the stock exchange, it also

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<v Speaker 4>provides what we call liquidity to the existing investors, and

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<v Speaker 4>that means that they're able to sell some of their

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<v Speaker 4>shares and get some money back. And in the case

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<v Speaker 4>of GUZMANI Gomez, it's super interesting. They actually have investors

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<v Speaker 4>that were related or connected to the founding group of McDonald's,

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<v Speaker 4>and so it's a super interesting group of people.

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<v Speaker 2>That's a really interesting point about McDonald's obviously a major company,

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<v Speaker 2>you know, monetarily in world markets. I've actually seen some

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<v Speaker 2>commentary that Guzman was calling itself the next McDonald's, and

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<v Speaker 2>now we're using that kind of success story to show

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<v Speaker 2>investors what was going to be possible. But for consumers

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<v Speaker 2>in the restaurant, if you're going to go down to

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<v Speaker 2>your local Guzman tomorrow, does anything change for them now

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<v Speaker 2>that the company.

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<v Speaker 3>Is public look day today, The answer is no.

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<v Speaker 4>I think the biggest challenge for GUZMANI Gomez is going

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<v Speaker 4>to be as they continue to grow at this really

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<v Speaker 4>rapid rate, are they able to maintain that really sort

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<v Speaker 4>of tight company culture they've referred to and really taken

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<v Speaker 4>pride in in the past. You know, I've listened to

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<v Speaker 4>the CEO and founder talk about how you know, they

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<v Speaker 4>currently have one hundred and eighty stores. McDonald's has thirty thousand,

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<v Speaker 4>and that's what they're trying to go towards. And so

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<v Speaker 4>I guess you have to ask the question that if

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<v Speaker 4>they have thirty thousand stores, how are they going to

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<v Speaker 4>be able to maintain that high quality that they really

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<v Speaker 4>pride themselves on.

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<v Speaker 2>One other thing I've noticed in the reporting on Guzman

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<v Speaker 2>going on to the AOSX is the word mote and

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<v Speaker 2>the idea that people were challenging where the Guzman had

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<v Speaker 2>a strong enough moat. What does that mean?

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<v Speaker 4>So an economic moat is a classic Warren Buffett term,

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<v Speaker 4>a very famous investor, and he always talked about how

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<v Speaker 4>he liked to indus.

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<v Speaker 3>Maybe my ninety three year old hall Puss. He always

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<v Speaker 3>talks about how you like to invest in businesses with

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<v Speaker 3>an economic moat.

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<v Speaker 4>And basically what that means is if you imagine back

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<v Speaker 4>in the day, You've got your castle that is surrounded

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<v Speaker 4>by a moat with you know, alligators and water, and

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<v Speaker 4>it's protecting from the enemies coming in and attacking the castle.

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<v Speaker 4>So in this circumstance, what we're talking about is how

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<v Speaker 4>is GUZMANI Gomez able to protect itself from competitors.

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<v Speaker 2>From being copied?

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<v Speaker 3>Exactly?

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<v Speaker 4>What is stopping another Mexican store starting up and being

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<v Speaker 4>just as good or better and expanding in the same

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<v Speaker 4>way that Goosmani Gomez has.

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<v Speaker 2>And so it was the undertone here that Gusman doesn't

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<v Speaker 2>have a good moat.

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<v Speaker 4>Yeah, so that's what some analysts are saying. And the

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<v Speaker 4>other thing that's sort of coming into the commetary around

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<v Speaker 4>that's related to this is the valuation of Guzmani Gomez

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<v Speaker 4>And so often when you are investing, you want to

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<v Speaker 4>look to the direct competitors for Guzmari Gomas. The other

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<v Speaker 4>publicly listed food companies that are analysts comparing to are

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<v Speaker 4>Dominos and Colin's Food, which is the sort of parent

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<v Speaker 4>company of KFC franchises. Now, Guzmari Gomez is valued significantly

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<v Speaker 4>higher than both of those companies, and so there's a

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<v Speaker 4>lot of question around whether maybe there's a little bit

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<v Speaker 4>of hype.

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<v Speaker 2>Have there been any major criticisms or concerns from the

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<v Speaker 2>investment community as this company has been talked about over

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<v Speaker 2>the past few months.

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<v Speaker 4>So I think we've talked about probably the two biggest

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<v Speaker 4>and most important, which is do they have a strong

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<v Speaker 4>economic moat and the valuation. But the other ones that

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<v Speaker 4>I have been reading about are around supply chain. So

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<v Speaker 4>we know the inflation continues to be quite high and

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<v Speaker 4>there are quite a lot of flow on effects to

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<v Speaker 4>supply chain. Gauzmni Gomez really prides itself on, you know,

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<v Speaker 4>using free range chicken, the highest quality food, all these great.

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<v Speaker 3>Inputs which are low price at a low price.

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<v Speaker 4>And yet you have to ask a question that with

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<v Speaker 4>these sort of more macro econom mcheadwinds, is that going

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<v Speaker 4>to make it harder for Gouzmighti Gomez to be successful

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<v Speaker 4>in the short term.

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<v Speaker 2>Everything is going up and consumers constantly are looking for

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<v Speaker 2>something cheaper, and if you position yourself as cheap, it's

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<v Speaker 2>hard to kind of keep up with that race. So

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<v Speaker 2>yesterday everyone gets very excited because for the first time

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<v Speaker 2>ever you can buy shares in Gusman. It floats on

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<v Speaker 2>the ax by the end of the day, so markets

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<v Speaker 2>close at four pm. What happened to the share price

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<v Speaker 2>and what does that tell you about how investors are feeling.

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<v Speaker 4>The stock listed on the Stock Exchange at a price

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<v Speaker 4>of twenty two dollars. People seem to really lack this

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<v Speaker 4>share It was up over thirty five percent in one day.

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<v Speaker 3>It's a great result.

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<v Speaker 4>I'm sure everyone involved in the business itself will be

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<v Speaker 4>very happy.

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<v Speaker 3>People like their burritos.

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<v Speaker 2>I also think there's an argument to be made for

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<v Speaker 2>when a really visually appealing and visually familiar brand lists

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<v Speaker 2>and people just kind of want to be part of

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<v Speaker 2>it because they've had a burrito once a week for

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<v Speaker 2>the last couple of years and they want to be

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<v Speaker 2>part of the journey.

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<v Speaker 4>I think that's the interesting thing about investing, right is

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<v Speaker 4>you can have this business where all of the fundamentals

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<v Speaker 4>tell you one thing, and by fundamentals I mean financials,

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<v Speaker 4>how much money is it making, what are the costs involved.

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<v Speaker 4>On the flip side, if people really like the brand,

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<v Speaker 4>if people engage with it, then they kind of want

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<v Speaker 4>to invest in it because they want to benefit financially

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<v Speaker 4>from the way that they're interacting with it day to day.

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<v Speaker 4>And so sometimes we see these circumstances where analysts and

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<v Speaker 4>finance experts might be saying one thing, you know, the

0:11:29.280 --> 0:11:31.920
<v Speaker 4>company's only worth this much, it's outrageous that they're value

0:11:31.920 --> 0:11:34.440
<v Speaker 4>it that high. And then on the flip side, when

0:11:34.440 --> 0:11:36.400
<v Speaker 4>it does list on the stock exchange, there's so much

0:11:36.480 --> 0:11:39.200
<v Speaker 4>hype and people love this company so much that they

0:11:39.240 --> 0:11:41.200
<v Speaker 4>don't care and they invest in it anyway.

0:11:41.440 --> 0:11:43.560
<v Speaker 2>So if you want to buy stocks and Guisman now,

0:11:43.600 --> 0:11:46.679
<v Speaker 2>and we're not giving financial advice, but more just as

0:11:46.679 --> 0:11:48.920
<v Speaker 2>an idea. If you want to buy stocks and Guisman now,

0:11:48.960 --> 0:11:49.920
<v Speaker 2>have you missed the boat?

0:11:50.080 --> 0:11:53.800
<v Speaker 4>I would say my biggest reflection on IPOs when companies

0:11:53.800 --> 0:11:58.960
<v Speaker 4>do go public is so often that initial few days, weeks,

0:11:59.080 --> 0:12:02.840
<v Speaker 4>months is really really turbulent. And so we know that

0:12:02.880 --> 0:12:05.800
<v Speaker 4>the stock price went up really significantly on day one,

0:12:06.160 --> 0:12:08.600
<v Speaker 4>and it might keep going up, but it might also

0:12:08.679 --> 0:12:11.280
<v Speaker 4>go down to and there's this interesting stat that around

0:12:11.280 --> 0:12:15.160
<v Speaker 4>eighty percent of IPOs actually lose money. So I think

0:12:15.200 --> 0:12:17.640
<v Speaker 4>when it comes to investing in businesses like this, when

0:12:17.679 --> 0:12:20.880
<v Speaker 4>they're in this stage of infancy on the stock exchange,

0:12:21.120 --> 0:12:23.960
<v Speaker 4>you really have to think about what is your risk tolerance.

0:12:24.360 --> 0:12:27.640
<v Speaker 4>Because if you love risk and you love tacos, maybe

0:12:27.640 --> 0:12:29.040
<v Speaker 4>this is a company that you want to do your

0:12:29.120 --> 0:12:32.200
<v Speaker 4>research in and invest in. But if you are I

0:12:32.240 --> 0:12:35.000
<v Speaker 4>guess more risk averse and you want to let it

0:12:35.160 --> 0:12:37.160
<v Speaker 4>play out a bit, this company is going to be

0:12:37.160 --> 0:12:40.040
<v Speaker 4>listed for a long time, and so you can sit

0:12:40.280 --> 0:12:42.439
<v Speaker 4>and wait and let it kind of settle and then

0:12:42.559 --> 0:12:45.880
<v Speaker 4>invest down the track. Once I guess, the adjustment to

0:12:46.120 --> 0:12:48.520
<v Speaker 4>what we call public markets settles.

0:12:48.160 --> 0:12:51.280
<v Speaker 2>Down really interesting. I can't believe that. You know, there's

0:12:51.280 --> 0:12:54.080
<v Speaker 2>so much money in good Mexican.

0:12:53.679 --> 0:12:55.800
<v Speaker 3>Food, three billion dollars apparently.

0:12:56.000 --> 0:12:57.800
<v Speaker 2>Amazing. Thank you so much for joining us on the

0:12:57.840 --> 0:13:00.480
<v Speaker 2>podcast today, Maddie, and thank you for joining us this

0:13:00.559 --> 0:13:03.720
<v Speaker 2>week on The Daily Os. Maddie's actually got her own podcast.

0:13:03.720 --> 0:13:07.120
<v Speaker 2>It's called You're in Good Company, really awesome financial discussions.

0:13:07.240 --> 0:13:09.560
<v Speaker 2>I'll throw a links to that in today's show notes.

0:13:09.800 --> 0:13:12.720
<v Speaker 2>We'll be back again on Monday morning. Until then, have

0:13:12.800 --> 0:13:13.680
<v Speaker 2>a wonderful weekend.

0:13:16.679 --> 0:13:19.000
<v Speaker 3>My name is Lily Maddon and I'm a proud Arunda

0:13:19.240 --> 0:13:21.800
<v Speaker 3>Bungelung Cargoton woman from Gadighl Country.

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<v Speaker 1>The Daily oz acknowledges that this podcast is recorded on

0:13:25.800 --> 0:13:28.280
<v Speaker 1>the lands of the Gadighl people and pays respect to

0:13:28.360 --> 0:13:31.680
<v Speaker 1>all Aboriginal and Torres Strait Island and nations. We pay

0:13:31.679 --> 0:13:34.640
<v Speaker 1>our respects to the first peoples of these countries, both

0:13:34.679 --> 0:13:35.560
<v Speaker 1>past and present.