Every Tuesday afternoon we publish a collection of topics and give our expert opinion about the Equity Markets.

While a week can fly by, there is still ample time for plenty of business news stories to germinate over that period. Last week seemed to be busier than usual from news of a public offering of burritos to a phoenix of commercial real estate and an energy encore, ABSI will highlight the business stories that caught my attention in the week that was. 

Guzman y Gomez Seeks A$2.2b Valuation in ASX Debut

Big news for Australian equity markets dropped last Friday with the news that popular Mexican fast food chain, Guzman y Gomez, has pulled the trigger on a much-anticipated IPO on the ASX. The deal seeks to raise A$242.5m at $22/share valuing the fast-growing franchisor at over A$2.2b post listing. This is a particularly strong valuation that will see it trade on 574x forecast FY24 P/E and 32.5x forward FY25 EBITDA, most likely sending the value investors running. However, with growth ambitions to grow stores 5x and take on the US, a market dominated by New York Stock Exchange-listed Chipotle, which trades on an even more aggressive ~43x forward EV/EBITDA, there is justification for the valuation.

Source:  GYG Prospectus

Putting the valuation debate aside, the announcement is great news for the fledgling Australian IPO market which has been deft of new deals for a few years now. A successful GYG debut alongside a potential RTO of Chemist Warehouse might just be the catalyst to see the IPO window reopen in Australia. As for GYG, I have confidence the deal will be well executed and received by the market. I also believe the stock will have a strong retail following given its wide Australian consumer base. Here’s hoping the ATO won’t mind me deducting my GYG lunches as “stock research” in the future. 

Brookfield’s A$10.2b Bid for French Renewable Energy Giant Neoen 

You can’t keep a good man down, or should I say a deep pocketed pension fund looking to finance the energy transition. Brookfield has rebounded quickly from its A$20b failed bid to buy Origin Energy by lobbing a bid for Neoen, the French energy company that made a name for itself as Australia’s largest developer of renewable energy assets. Neoen also operates in Argentina, Canada, Ecuador, the US, and various European countries. 

Trading on the Euronext market, Neoen shares surged ~25% on the news that Brookfield had reached an agreement to acquire 53.32% of the Company from its largest shareholder, Impala, for €39.85/share a 40.3% premium to the 3-month VWAP and valuing the equity value of the company at €6.1b. Brookfield will now lodge a mandatory all-cash tender offer for the remaining shares and convertible bonds. While the transaction is far from complete, it's interesting to see the merger arbitrage opportunity currently sitting at ~5%, not a bad return for those in the space. I’d expect that to compress in the coming weeks.

Neoen Australian Footprint

Source:  Neoen

The deal comes as a slap to the face of some other players in the space who were simultaneously negotiating with Neoen on the sale of specific Australian renewable assets. However, the deal is good news for Australian stakeholders as the Company now has the backing of some of the deepest pockets in the world to execute its renewable energy ambitions in Australia which includes a pipeline of almost 20GW. 

WeWork Rises from Bankruptcy Flames

The commercial real estate market has been on rocky ground since the onset of the Covid pandemic which accelerated the work-from-home movement followed by the fastest acceleration in interest rates in modern history. The epitome of this trend is WeWork, the coworking company that once held a peak valuation of US$46b but then went into bankruptcy in 2023. However, in what may end up being the bottom of the CRE market, news emerged last week that WeWork has a new owner and it would be emerging out of Chapter 11.

Despite attempts by former WeWork founder, Adam Neuman, to recapture the company he was ungracefully removed from in 2021, it was little-known Indian-American software billionaire Anant Yardi who emerged with the keys to the castle. Mr Yardi made his fortune in property management software, setting up Yardi Systems and growing the private company to revenues of almost US$3b annually. Now his attention turns from software to more tangible assets as he attempts to right the WeWork ship.

Source:  Visual Capitalist

It is important to appreciate that Yardi isn’t new to WeWork. About two years ago, he put US$200m of debt and equity into the declining business and has since agreed to inject another US$337.5m in order to gain control. The bankruptcy court will also look to wipe US$4b of existing debt from the books and allow it to terminate unprofitable leases. WeWork will emerge from bankruptcy as a less-burdened and leaner US$750m business. Yardi’s plans for the future include marketing to small businesses and embracing technology used by the hotel industry to improve utilisation. The road ahead will be tough for Yardi but there is significant value in the WeWork brand and if properly managed can be leveraged for great success.

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