Joseph Taylor: So, Lochlan, thanks for joining me today to talk about Guzman, Australia's quickest growing QSR, which is a quick service restaurant, and it's going public soon. So other quick service restaurants like McDonald's and Domino's have been really, really strong performers over the long term for investors. Is Guzman the same kind of caliber of business?

Lochlan Halloway: Yeah, so those peers you mentioned, McDonald's and Domino's, they're big global brands with long track records, as you point out, of consistent performance, of strong store rollouts, of strong store economics. And that's why we consider those to be moated brands. Guzman, on the other hand, is quite a lot earlier in its life cycle. It's very much in the rollout stage, in the growth phase. So, we're more hesitant, I suppose, to put them in the same category. It may one day be a great global QSR brand, but at the moment, it's still in its formative years.

Taylor: So, the business sounds pretty good, but what are the main one or two variables that will decide whether the stock performs well for shareholders?

Halloway: Yes, I think everyone is going to be quite interested in the store rollout. So, Guzman have long-term ambitions to have around a thousand stores, or they can see they can get around a thousand stores in Australia over the next 20 or so years. That's going to be a key indicator for them over the long run. But to get there, it's going to be can they roll out stores that look good, that have healthy returns on invested capital, and that have strong store economics. So, I think what we're going to be looking at is going to be as this rollout progresses, which we think it will over the next – at least the next decade, are they maintaining strong healthy store economics, which would justify and extend that rollout.

Taylor: And that's important because at the end of the day, Guzman aren't running all of these stores themselves. They need people to see the opportunity and the profitability of running these stores and coming on as franchisees. Is that correct?

Halloway: That's exactly right. So, they will have a part of the network will be corporate owned, about 40%, it seems, over the long run. But the other 60% of new stores will be franchisees. And to encourage franchisees to build a new store, you have to offer them compelling store economics. So, if you're going to expand your network significantly and have a big, fast rollout, you have to have the franchisees on board. To have them on board, you have to have solid store economics and attractive returns on investment.

Taylor: Great. So, you said that they are around 180 locations today, and they've targeted a thousand over the next 20 years. Do you think that's realistic?

Halloway: Look, I think we're crediting them with 40 stores a year over the next 10 or so years. That's well ahead of their Australian listed QSR peers, Domino's Pizza and Collins Foods. That's somewhat reflective of where they are in this growth journey of theirs. It's still a small brand and a small footprint, but it is growing. On the long-term picture, look, there are a thousand potentially viable catchments there in Australia. That's sort of what McDonald's Australian footprint is today. So, it's possible. But to give them full credit for that thousand stores over the long run, we probably need to see that the brand is holding up really well as they keep rolling out that it's not sort of becoming saturated, which you'd expect as you roll out stores quickly. So, over the long run, we think, look, it's possible they can get there. We're going to give them credit for the next 10 years of a rapid rollout. But after then, we're expecting it's probably going to become a bit more harder as the brand gets saturated.

Taylor: Great. So, by viable catchment you mean somewhere that they can put a store and it can still be as profitable as past stores. Is that roughly correct?

Halloway: That's the idea. So, they identify areas of around 30,000 people in a 3-kilometer radius and they'll put a store there. That's where they can see themselves putting a store. Again, it's sort of the template that most of their QSR peers follow. The catchments are there. It's whether they can keep putting a new store in there and having equally attractive returns on investment as their existing store base.

Taylor: Okay, great. So main variables are the amount of stores they can roll out and how profitable those stores can remain and the returns on invested capital that come from that. So, the offer price is $22 per share. What kind of expectations do you think are baked into that price?

Halloway: Yes. So, look, I think it's likely that the market will be thinking about that long-term store rollout piece. I mean, for us to arrive at a price around the offer price, we'd have to assume they probably get to that thousand store footprint over the long run. So that would look something like a wide moat company. And again, we're probably assuming that they're getting – you sort of necessarily have to assume that they're getting strong returns on investment for those stores throughout that rollout period. There may also be a bit of optimism to around the international side of the business, which is much smaller now, but there's definitely blue-sky opportunity there that the market might be focusing on.

Taylor: Great. So, we said earlier that the offer price is 22 Aussie dollars per share. Morningstar have assigned a fair value of $15 per share at the moment. What went into that valuation?

Halloway: Yeah. So, that's reflective of our view firstly on the store rollout over the next 10 years. So, we're anticipating that they can roll out stores much faster than their QSR peers that we cover like Domino's Pizza and Collins Foods. We're expecting them to be able to do that whilst also keeping store economics very healthy. That gives us this sort of next decade of strong growth, strong sales growth and strong earnings growth. In the long run though, we think because Guzman at this stage lacks a moat, we think it gets harder. We think they're going to begin to reach that saturation point probably in 10 years and then roll out will slow as a result of that. But again, the growth story is really important. That's what we're baking into the price, but we think it gets tougher over the long run.

Taylor: Great. So, we kind of mentioned this beforehand, but it's an interesting time for Guzman to go public given that many of its peers have actually been quite soft in the market recently. So, would you say that Domino's is the kind of purest comparable?

Halloway: Look, I think again, they are reasonable Australian-listed peers, but they're not perfectly comparable. Because we're thinking about where Guzman is, I mean, Domino's and Collins Foods, which is the KFC franchisee, they're getting probably close to their saturation points in Australia. The other thing too is that they're also exclusively franchisees, whereas Guzman owns the brand. So that gives them more flexibility and more control over things like the rollout and how they tailor the menu and the store experience for their customers. So, it gives them a little bit more influence over their store count. They're comparable, but we're talking about Guzman being at the very early stages of its rollout and those two other brands probably being closer to maturity and saturation.

Taylor: Perfect. So, it sounds like a really interesting company, and I guess we'll see what happens with the stock. Thank you very much for your time.