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Shake Shack seeks valuation as high as US$568m in IPO

[NEW YORK] Shake Shack has proven that New Yorkers are willing to line up for its US$5 burgers. Now the company's asking investors to pay as much as US$16 apiece for its shares.

Started a decade ago by New York restaurateur Danny Meyer, Shake Shack wants to raise as much as US$80 million in an initial public offering.

It's planning to sell 5 million Class A shares for US$14 to US$16 apiece, according to a filing on Tuesday with the Securities and Exchange Commission. That indicates a market valuation as high as US$568 million, based on 35.5 million shares outstanding, the filing showed.

Founded as a hot-dog cart to help support the restoration of Manhattan's Madison Square Park, the company now has more than 63 outlets in over 30 cities from London to Dubai and boasts sales growth of 41 per cent in 2013.

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Still, Shake Shack faces a slowing growth rate and narrowing profitability: Net income in the 39 weeks through Sept 24 dropped amid higher costs to open new restaurants, the filing shows.

Shake Shack is asking for 6.9 times sales of US$82.5 million in 2013, the last full year for which it provided revenue data. That's well above other casual restaurants that have recently gone public. El Pollo Loco Holdings Inc fetches 2.8 times, Noodles & Co trades at 2.3 times, and Potbelly Corp is around 1.4 times 2013 revenue, data compiled by Bloomberg show.

Broken out by restaurants, Shake Shack's average annual sales fell slightly in 2013 to about US$5 million at each of the company-owned stores in the US Locations in Manhattan generate closer to US$7.4 million each year, on average, and have higher profit margins than those elsewhere in the country.

With the latest filing Shake Shack can begin marketing the IPO to investors - pitching its ambitious goals for growth. Shake Shack plans to open 10 new company-operated stores each year, with a goal of reaching 450 in the long term, the filing shows. The company hasn't specified the timing for reaching that number.

The company is offering a dual-class share structure, with the Class A stock issued in the IPO representing 44.5 per cent of the economic stake Shake Shack and 14.1 per cent of voting power. Current stockholders - such as Union Square Hospitality, Leonard Green & Partners and Meyer - will own, through Class A stock, 55.5 per cent of economic interests and 17.5 per cent of voting. Through Class B, these investors will hold the remaining 68.4 per cent of voting power.

JPMorgan Chase and Morgan Stanley are managing the IPO. Shake Shack plans to list its shares on the New York Stock Market under the symbol SHAK.