Investing 20-01-2023 13:07 15 Views

IDS share price hangs on as Royal Mail outlook darkens

International Distributions Services (LON: IDS) share price continued consolidating as business conditions worsened. Shares of the Royal Mail parent company were trading at 218p, where it has been in the past few days. It remains slightly below the December high of 245p. 

Royal Mail concerns remain

In December, I wrote an article in which I warned about the rising risks of Royal Mail going bankrupt. That has not happened yet but the outlook for the company has continued worsening amid an ongoing workers’ strike.

Royal Mail workers have warned that they could continue striking in the coming months. They are seeking their management to adjust their wages in line with the rising inflation. Data published on Wednesday showed that the UK consumer price index (CPI) remained above 10% in December.

At the same time, the company was hit by a major cyber attack that left its operations in limbo. The company suffered a ransomware attack that made it impossible to handle its business. The attackers threatened to publish internal data that they collected.

In a statement on Thursday, Royal Mail said that it will slowly resume international deliveries gradually. Most of the parcels are being sent to countries like France, Germany, and the Netherlands. 

Further, the company has been criticized by members of parliament of prioritizing its parcel business instead of letters. Like other postal companies, the company has been focusing on parcels as the volume of letters drop.

Therefore, analysts believe that Royal Mail’s financial situation will continue to worsen in 2023. A likely remedy for the company will be to divide its business into two: Royal Mail and GLS. While Royal Mail is a loss-making entity, GLS has been growing and is still profitable. Still, it is unclear whether this breakup will be effective.

So, will Royal Mail file for bankruptcy? Such a possibility cannot be ruled out. Therefore, investors will focus on the upcoming trading statement that will provide more color about the state of the company.

IDS share price analysis

IDS chart by TradingView

IDS stock price has reacted positively to the recent happenings in the company. While the strike and ransomware attack news has been bad, the stock has continued to consolidate. It has moved below the 50-day moving average and the important resistance level at 255p, the highest point on November 18. 

The outlook of the stock is still bearish, with the next reference level to watch being at 174.3p, the lowest point in 2022. This price is about 20% below the current level.

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