Good evening,

It’s not just the burritos causing heartburn. Spare a thought for fund managers leafing through the Guzman y Gomez prospectus – and reporting back that the enterprise value-to-earnings figures couldn’t be more difficult to understand if they were in Spanish.

Documents circulated to shareholders hold out Guzman y Gomez comes at an enterprise valuation of 32.5-times pro forma EBITDA for the next financial year.

But those who are looking closely think this is misleading.

Some are even of the view that the Australian Securities and Investments Commission may have a pretty dim view of this kind of spicy number crunching.

For a start, the earnings metric in the prospectus ignores Guzman y Gomez’s lease liabilities – its second-largest cost after employee expenses. They were worth about $210 million at December 31 and would be expected to tick higher as more stores open. Omitting the leases allows the fast-food chain to beat the drum on its impressive growth trajectory, and book a multiple on a much fatter 2025 earnings figure.

“It is not only fundamentally wrong, it is inconsistent with normal practice for constructing earnings multiples or how a prospectus for a business like Domino’s or Collins Food is valued or analysed,” said one prospective investor on Monday.

“Anyone who understands valuation multiples knows that when EBITDA is presented excluding the costs of the leased stores – which their selection of EBITDA does because rent manifests primarily as Amortisation of the Right of Use Asset, and Interest on Lease Liabilities – then the enterprise value needs to include the debt associated with the leases,” another investor told this column.

Of course, value is in the eye of the beholder.

But consider how expensive Guzman y Gomez would appear if it was more traditional when it came to metrics. That would be about 100 times EBIT. Or 380 times PE.

Read the full story tomorrow and more on the Street Talk page.

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While it may have flown under the radar of the Zegna-suited private equity parade, Assembly Label has built a loyal following among its target clientele, thanks to no-frills timeless designs, natural materials and affordable prices.

Click here for the latest equity market wrap.