Back at the beginning of the year there was plenty to like about Royal Mail shares. The company was making money, and the dividend pay-out was healthy. Crucially, too, the company was debt free with good cash reserves.
Introducing International Distribution Services
On October 4th, the holding company of the Royal Mail Group officially changed its name to International Distributions Services (LSE: IDS). This name change occurs against a backdrop of a far more challenging time for the company. This is dominated by worsening labour relations, as the management continues to try to introduce efficiencies. There’s also inflationary pressures, including rising fuel costs.
As I write this, a further 19 further days of industrial action is due to start. Possible job losses of 6,000 staff by March 2023 have been indicated as well. International Distribution Services is concerned that ongoing strike action will continue to erode its customer base. Consequently, the Board suggested in its most recent trading update that operating losses for the year could tumble to between £350m and £450m . The share price has reacted accordingly. It is now down some 64% since the start of the year and is approaching its pandemic lows of March 2020.
So what is the good news?
Given the dire trading conditions, why am I even looking at possibly investing in this company? The answer lies with its profitable Global Logistical Services (GLS) operation in Europe and N. America. This division focuses purely on parcel delivery, which continues to thrive, contrasting markedly to a declining letter-delivery business.
In the past, profits from GLS have been used to offset the losses at Royal Mail. The management is now suggesting that the formation of International Distributions Services might allow them to implement “clear financial separation with no cross-subsidy”. Given that in its latest update GLS was reported to be on track to deliver an operating profit of £320m-£354m, that separation is looking increasingly more likely.
How much of this talk of breaking up the company is designed to bring a unionised and reluctant workforce to the table, I can only speculate on. However, I am aware that potentially there could be an opportunity soon to buy up shares of International Distributions Services at heavily discounted prices.
Is it time to buy?
Now does not seem to be the time to invest, however. Talk of further industrial action and redundancies continue to dominate the narrative. The company has said that it is unable to give a clear outlook for the current financial year. That is going to deter potential investors. But I am keeping my eye on future developments and any possible catalyst for a reversal in the share price.
The post Royal Mail shares have changed name. Will their fortunes change too? appeared first on The Motley Fool UK.
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More reading
- International Distribution Services shares plummet on Royal Mail news. Should I buy?
- Is £1.80 the turning point for the Royal Mail share price?
- If I’d invested £1,000 in Royal Mail shares 5 years ago, here’s what I’d have today
- Is the FTSE 250 the home of high dividends?
- 3 FTSE 100 stocks that I will never invest in
Michael Hawkins has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.