Investing 15-11-2022 11:24 12 Views

IDS share price recovery derails: What next for Royal Mail?

IDS (LON: IDS) share price slammed the brake pedal as the market waited for the upcoming interim results. Shares of Royal Mail Group’s (RMG) parent company were trading at 244p on Tuesday, slightly lower than this week’s high of 254p.

Royal Mail earnings preview

Royal Mail Group recently changed its name to International Distributions Services (IDS) as the company faces significant challenges. The change of name happened as the company considers separating its Royal Mail and GLS business divisions.

The management believes that a change of name will help create value since GLS is more profitable than Royal Mail. As such, by being separate entities, Royal Mail will need to boost its business since it is now being subsidized by GLS. GLS is on track to have an operating profit of between 320 million and 354 million pounds. 

IDS is also planning on more ways to cut costs. Recently, the firm announced that it would lay off thousands of employees in a bid to cut costs. 

Therefore, this week’s interim results will provide more color about the state of the company. Analysts believe that its results were significantly worse because of the recent strikes. In its most recent update, the company said that it will lose about 219 million pounds in the first half.

IDS is currently negotiating with its employees on an offer. Last month, the Communication Workers Union (CWU) rejected a “derisory” 7% increase pay offer. It argues that most of its members are struggling to survive since inflation has surged to 10%.

The union has also served several legal notices as its members plan for several strikes during the Christmas season. In its update, the firm said that three days of strikes had cost it about 70 million pounds. Therefore, there is a likelihood that more strikes will lead to substantial losses.

IDS share price forecast

Is it safe to buy Royal Mail shares? The daily chart shows that the Royal Mail share price has been in a strong recovery recently. It has risen in the past seven days straight, its best bull run since July. The 25-day and 50-day moving averages have made a bullish crossover while the Relative Strength Index (RSI) is approaching its overbought level.

Therefore, the stock will likely retreat after the company publishes its results this week. If this happens, it will drop and move to the key support level at 200p. A move above the resistance level at 260p will invalidate the bearish view.

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