Could Cotton On be gearing up for an ASX IPO soon?

Why are rumours circulating of a potential public listing for Cotton On?

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Cotton On has become well-known for its range of affordable clothing without compromising on quality. Founded by Nigel Austin in 1991, the company has gone from a single store operation out of Geelong to a global retailer spanning 1,300 stores.

Thirty years on from its humble beginnings, and there are whispers of the company making a public debut. Cotton On listing on the ASX might be a logical option considering nearly half of its stores are based in Australia. However, the company also holds a sizeable presence in the United States.

So, what has triggered market pundits to speculate on a potential Cotton On listing? Let's delve deeper into the details.

Is Cotton On getting in shape for an ASX debut?

The speculation surrounding Australia's largest global retailer has come to light after sources thumbed through the company's latest financial accounts. According to the documents, Cotton On has been in the process of refining its organisational structure.

In its FY21 financials, the company explained it had commenced a three-phase strategy to 'corporatise' its entities on 24 November 2019. Prior to this, Cotton On had been sprawled out through a number of separate incorporated entities and unit trusts. These included Brandnine Pty Ltd, Cotton On Clothing Trust, Cotton On Body Unit Trust, and many others.

Additionally, the documents showed Cotton On had completed the second phase of its consolidation in May 2021. From here, the final stage is expected to occur in the next financial period. This has ignited speculation over whether Cotton On plans to make an ASX debut under the consolidated COGI Pty Ltd banner.

Importantly, the company's finances appear to be in good order, which makes attracting investors for an initial public offering (IPO) much easier. In the last financial year, Cotton On grew its global sales by 25.7% to $1.32 billion. More impressively, net profit swung from an $11.4 million loss to a $69 million profit.

Furthermore, the company's balance sheet is in reasonably good nick. At the end of the latest financial period, Cotton On is believed to have held $160 million in cash and $189 million in bank loans. In total, the retailer boasts $1.4 billion in assets.

Who would Cotton On be joining?

If Cotton On were to list on the ASX in the future, it would be joining a number of recognisable and formidable clothing retailers. These brands include City Chic Collective Ltd (ASX: CCX), Premier Investments Limited (ASX: PMV), and Best & Less Group Holdings Ltd (ASX: BST).

The most comparable ASX-listed company to Cotton On currently is likely Premier Investments. Both companies have similar revenues and operations. As such, if Cotton On were to fetch a similar market capitalisation, it would be eyeing off a valuation of around $5 billion.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Premier Investments Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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