BurgerFuel: value or not?

Mark Clare just says No! to the BurgerFuel prospectus. A valuation that implies BF will grow from opening 20 stores from 1997 to now, to 700 in five years is something that he just can’t accept as realistic. I agree – even Subway, the world’s biggest franchise, only has 1200 stores in Australia and NZ, while more realistically Burger King has 380.

Meanwhile much lauded Gourmet Burger Kitchen went from 6 to just 31 stores in the period between it’s purchase for 10m pounds in Nov 2004 and May 2007.

Nandos – yummy chicken but a terrible Wellington store – listed with a valuation of 192m Rand, which is, well, just $34m NZD at current rates.  That’s $34m for a 700 store franchise, including stores in 5 continents. That’s just shy of $50,000 per Nandos store, versus $3,000,000 per Burger Fuel store. (I hope I got that right – but this information came from the BF prospectus, page 52. I cannot find their reference on the nandos.com site, and the referenced article is vague on whether the 192m shares are all or just some of the total.)

Another comparable is Chipotle, which has a soaring valuation of $2.5bn on $872m revenue and 600 stores. Thats $4m per store, but from a company that McDonalds acquired in 1998 and just flipped to the market this year. And the revenue per Chipolte store is $1.5m per year, versus $1m for Burger Fuel.

The terms are similar to Xero’s – 15m shares on offer at $1, at a total valuation of $60m.  There are also 3m options up for grabs in a 1 option per 5 shares deal – exercisable for $1 over the next 18 months. That will keep the price at or below $1 for a while. One nice touch is the 1m shares that will be gifted to employees and directors. Another is that you can give your share application to a BurgerFuel store, and do it all online or by credit card.

They do have revenues – system revenues of of $16m per year, and BF revenues of just over $3m for CY2006. However BF do not expect to make a profit for ‘the next few years’, and lost $420k last year.

They’ll use the funds to build company stores  in Australia, at $3-500,000 per store. That’s a strange decision given that franchising gives so much more bang for the buck. Why not pass the development risk to franchisees? They say they’ll try…

Overall I’m dismayed by the paucity of information provided for this and the Xero IPO, and will not invest. Despite what seem to be uninspiring requirements for disclosure from NZX, the onus is on these companies to demonstrate their value in potential investors. That means forward projections, robust analysis and discussion of their basis, and how they hope to get there.

How on earth can you put this disclosure on your prospectus and expect reasonable investors to invest? Why is this even allowed?

“… the issuer believes that it is unable to prepare meaningful projections of future returns and has elected not to provide projections of future returns. “

Published by Lance Wiggs


9 replies on “BurgerFuel: value or not?”

  1. Nice post, I was a bit put off when I downloaded their prospectus and found it mostly images and the rest fancy fonts. Talk about hard to read!


  2. I have to agree again about the prospectus. There were too many pictures. They WILL likely be successful in getting students, their staff and the un-savvy to invest though…notice how low the entry is…just $1000.

    I actually run a burger business in NZ as well and have just returned from a trip to Sydney. I was struck how many gourmet burger places there are in Sydney (and likely the rest of Australia). It felt a great deal more competitive there and people there seem much more active and savvy. That Burgerfuel is choosing to focus on an Australia expansion makes me worry whether they’ll survive the competitive pressure. There is one particular outlet I can think of that will compete HARD with them…Aporto. And these guys already have at least one store in Auckland, Mission Bay. Burgerfuel didn’t mention this chain when they mentioned potential competition.


  3. It’s a big risk for sure. But I think it’s worth a 1K gamble at least.

    One of the most attractive things about BF is the doofer. Assuming they own the relevant patents etc, I think the doofer is a fantastic invention and one that in itself could generate some cash.


  4. The doofer is hardly a foundation for transtasman let alone international domination.

    Google ‘hamburger holder’ etc and you’ll find sevaral patents on the theme.

    The feature on fraud in this week’s NBR reminds us that lack of material facts, glossy brochures, and charasmatic diversion do not make a sound business.


  5. Unfortunately I think that burger fuel as a company really stuggle with there communication. This is seen in their badly constructed, written and designed prospectus as well as there promotional material.

    To be a global brand communication is paramount, just look at the great job 42below do. Their communication is successful and so is the company.

    Burger fuel going global. Good luck they will need it.


  6. Even though burgerfuel as a company has many things to work out, as a franchise in australia i think it can do very well. Firstly Aporto is very sydney based and difficutl to find in most other places in Australia. It is quite a different store (mostly chicken) and can already be found in two locations in NZ. Burger fuel is so different to anything we’ve got here in australia that i think it could do so very well… I just hope it comes all the way to perth!


    1. I brought into burgerfuel in 2007 for $1500 now i have $136000. Cheers burgerfuel!


Comments are closed.