Royal Mail share price: IDS stock lacks a clear catalyst

August 30, 2023 04:30 AM PDT | By Invezz

Royal Mail share price: IDS stock lacks a clear catalyst — Image source: Invezz

Slow business growth

IDS, the parent company of Royal Mail Group, is going through a rough patch as demand for its letters and parcels business remains low. The company is also contending with higher operational cost environment after the recent deal with its workers.

The most recent results showed that total revenue dropped by 4% YoY in the first quarter. The volume of parcels dropped by 10% to 283 million while domestic parcels ell by 9% to 250 million. International parcels volume fell by 13% to 32 million while GLS rose by 4% to over 219 million.

In terms of revenue, IDS Group revenue increased modestly to £3 billion, helped by higher prices and GLS. Royal Mail’s revenue dropped by 4% to £1.8 billion. These results showed that the company’s business is slowing down.

The challenge for IDS, as I wrote here, is that it lacks any clear catalyst that will boost its revenue growth and profitability. I believe that its revenue growth will either be stagnant or slow this year. Any growth will be helped by the lack of strikes that we experienced a year ago.

At the same time, Royal Mail’s profitability will remain under pressure since its wage bill will likely continue growing. The only remedy would be for the company to cut costs by reducing its bloated wage bill. In January, the company said that it would cut between 5,000 and 6,000 cuts. It is unclear whether these cuts are still happening.

Also, the company would benefit by reducing its footprint in the UK, an unlikely situation because of the laws it has to comply with. Unlike other private companies, Royal Mail is mandated by law to operate everywhere, even in unprofitable areas.

IDS share price forecast

The daily chart shows that the Royal Mail share price has been in a strong bearish trend in the past few weeks. This decline is in line with what I predicted in July. The stock moved below the important support level at 260.2p, the highest level on April 24th.

The stock has dropped below the 25-day and 50-day moving averages. It also remains above the ascending trendline shown in blue. Therefore, I suspect that the shares will likely continue falling as sellers target this trendline at ~200p. If this happens, the stock could fall by ~16.50% from the current level.

The post Royal Mail share price: IDS stock lacks a clear catalyst appeared first on Invezz.

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