After falling 15% in the last month, International Distributions Services (LSE: IDS) — also known as IDS — shares are sitting at an almost-52-week low.
What caused this drop? And is IDS stock a buy now? Let’s explore.
A 15% fall
Last month, IDS released full-year results and they made for unpleasant reading. Revenues of the firm’s UK delivery service – which still goes by the name Royal Mail – went from £8.5bn in 2022 to £7.4bn in 2023. This caused an operating loss of just over £1bn for 2023 compared to an operating profit of £250m in 2022. The delivery company went from profitable to bleeding money.
Management said this poor performance was driven by three causes – industrial action throughout the year, an inability to make productivity improvements (possibly because of the strikes), and lowered volumes in online shopping. This caused the shares to drop 13% in a week and they haven’t recovered since. The current price of 196p is now close to the 52-week low of just 182p last September.
So, with the shares looking this cheap, is now the time to pick up a bargain?
Is it a buy?
The biggest obstacle for me, if I want to open a position here, is the ongoing dispute with its unions. The Communications Workers Union (CWU) – which represents postal workers – is demanding pay increases for its workers. It’s already led to strikes that were estimated to cost IDS £11m a day. This partly explains those disappointing results. Supposedly, a deal has been agreed for a 10% pay bump, but it’s not been voted on yet. The share price could prove to be cheap if this gets dealt with quickly.
And if this dispute does get resolved, it’s worth pointing out that IDS generates tons of revenue. Some £12bn in total revenue looks high compared to a £1.9bn market cap. That’s a lot of money to play with if the company can resolve the industrial action and make efficiency improvements. We’ve seen how IDS can do that with GLS, its overseas arm that’s booming in over 40 countries. While Royal Mail was losing millions, GLS enjoyed a £297m operating profit last year. The success is such that there’s talk of spinning it off.
A return to profits would likely mean high dividend payments too. Yields of 8%+ are common looking at the last few years, although IDS did scrap this year’s final dividend. A return to dividends would be nice for the cash returns, but also would likely boost the share price if they were to become regular.
Is that likely? Well, one red flag is that short interest in IDS has increased over the last month. Now, nearly 6% of all shares are shorted, which makes it the fifth most shorted firm on the London Stock Exchange. That’s a lot of investors who think the shares are still overvalued and expect them to slide down further.
Putting it all together, the uncertainty is a little too high for me to open a position here.
