International Distributions Services (LSE: IDS) shares have not done well since the firm renamed itself from Royal Mail Group.
The stock did pick up a bit in April, though, with full-year results due in May. But we still see a 56% fall over five years. So is the time ripe for a bargain buy?
Royal Mail
The name change does seem to make sense. After all, there’s more to the company than Royal Mail itself.
There’s the General Logistics Systems (GLS) arm. And if I could buy shares in GLS for a good price, I might well want some. And I have no real worries about Parcelforce.
But Royal Mail itself is the fly in the milk. Think Royal Mail, and we think industrial unrest, strike action, and all the rest. And other mail providers are ahead in terms of services.
Nine months
For the first nine months of the year, Royal Mail saw a 12.8% drop in revenue.
There are far fewer Covid tests to carry now, which doesn’t help. But 18 days of strikes in the period also took their toll.
Letter volumes fell by 8%, with parcel volumes down 20%. Yes, there might be a few factors behind those drops this year. But they also look like part of a worrying trend.
Royal Mail made an operating loss of £295m over the nine months, and the firm put £200m of it down to the strikes.
Outlook
For the full 2022-23 year, it sounds like we could see an operating loss of about £400m. That’s a big ouch.
Looking ahead, negative cash flow is on the cards for 2023-24, and that could need some disposals to deal with.
The board says it still aims for an adjusted operating profit in 2024-25. Now, call me a cynic, but that still seems some way from real profit and hard cash to me.
Next 10 years
To buy IDS shares now, I’d have to be in it for the long term. That’s no bad thing, as my horizon is always a decade or more ahead. But I tend to want some clear view on long-term profits and, particularly, cash flow before I buy a stock.
Warren Buffett suggests we should only buy if we’d be happy for the market to close for 10 years.
But if I try to guess where International Distributions Services stock might be in 10 years time, well, I don’t have a clue of what to guess at!
Recovery buy?
Still, I suspect recovery investors will be watching this one like hawks. And if we see any sign of better things when we get those FY figures, I think the IDS share price might well climb some more.
Plus, forecasts do have a decent profit and a price-to-earnings (P/E) ratio of less than 10 down for 2025.
But I still see a long way to go, and the huge uncertainties rule IDS out of my options. To me personally, it looks like a no-brainer avoid for now. I hope I’m wrong when we get those results in May.
