Royal Mail has lost its monopoly on parcels at Post Office branches, making next week’s interim results for parent International Distributions Services PLC (LSE:IDS) a critical juncture for the delivery service.
After more than three centuries, Royal Mail lost its prime position as the foremost parcel delivery service in the UK, despite running its six days a week ‘Universal Service’.
The company is due to release its results for the first half of financial year 2024 on Thursday 16 November.
"In the context of increasing macro uncertainty, we think the appeal of IDS is represented by its potential turnaround story - being one of the few self-help stories in European Transport," analysts at UBS said.
"A mixed historical track record in the UK leaves execution risks ahead; but we believe current FY23-24 [consensus] expectations for the UK division profitability... include a buffer to reflect a sequentially deteriorating UK economy and slow [company] progress on productivity improvements."
Despite a tumultuous time for Royal Mail, the IDS share price has risen by about 10% this year after maintaining relatively steady revenues of £12.7 billion in the last financial year.
Turnover remained strong despite a slide in the company’s pre-tax profit during the financial year that ended in March, as it grappled with the aftermath of a fall-out with staff over pay, with a new pay deal finally agreed with its main union in July.
Not long before this, Ofcom had launched an inquiry into Royal Mail after it missed its delivery targets in 2022 to 2023.
And now, in the crucial lead-up to Christmas, Royal Mail faces stiff competition in the form of its nearest competitor Evri.
Evri has confirmed it will spend £46 million on strengthening its customer services and operations in the lead-up to the holiday season.
Analysts at Citigroup reiterated their 'buy' recommendation for Royal Mail shares in a research note in November.
Equity research analysts lowered their price target, where they would see fair value in Royal Mail shares, to £3.25 per share.
That would still leave headroom for Royal Mail shares to climb by more than 25%, up from the trading price today of 239.60p.