London may be getting its most exciting new listing in a long time. After facing regulatory hurdles in its attempt to list its initial public offering (IPO) in New York, Shein is stepping up its preparations for a London listing. The China-based fast-fashion company was valued at $66bn (£52bn) in a fundraising last year.
Is this one for investors to pay attention to?
A change for London
In September last year, the LSE lost out on the IPO for Cambridge-based Arm Holdings, which sought a higher valuation on the Nasdaq. More recently, betting firm Flutter ditched its primary London listing in favour of the NYSE.
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The track record for big names has been poor in London. Maybe Shein might be the trend-changer going forward.
At the most recent valuation, Shein would place itself as the 12th largest company in the FTSE 100. This would be a major win for the LSE, finally attracting one of the big names over its counterparts across the pond.
Regulations
Regulations were the main hurdle in Shein’s attempt to list in New York. Geopolitical tensions between China and the US proved too hard to overcome.
Now in London, the company faces more issues. Three parliamentary committee chairs have pressed for more scrutiny of the company, and also insisted that the listing should not go ahead while parliament is dissolved for the general election.
Why the scrutiny?
Well, there are ESG concerns about Shein’s labour policies in China, the poor working standards, as well as intellectual property theft accusations.
Although the listing would be good for London’s image, this may be a listing that comes with as many problems as it does solutions for the IPO market.
The company itself
Shein will want to establish itself as a global player rather than just a Chinese company selling inexpensive clothing internationally. Also note that there are not many apparel companies with a valuation near $66bn. Shein has a big valuation with a lot of problems.
In 2023, the company made $32.5bn in revenue and $2bn in net income. So, with roughly a price to sales ratio of 2, Shein is in line with peers such as Next and TJX Companies.
My view
Will I be buying shares if the IPO goes through in London? No. This is a name that I will let pass me by.
A good move for the LSE, perhaps, but not for my portfolio.
There is something that doesn’t sit right with me knowing that a company faces large ESG issues and is present in my portfolio. The financial industry is putting more and more pressure on this metric. I can only see this risk decreasing the valuation of shares as time goes on.
In a crowded apparel market, there is a risk that Shein may lack a sustainable competitive advantage over its rivals. It is a brand built from offering very low prices. However, the fast-fashion industry typically has low profit margins. Competing primarily on price could further reduce those margins.
