It will get worse before Royal Mail has a chance of getting better - broker

[TrueBlueTerrier]

https://www.proactiveinvestors.co.uk/co ... 16117.html

Royal Mail’s woes mean things are set to get worse before there’s a chance it can get better for its London-listed parent company International Distributions Services PLC (LSE:IDS), that’s according to Liberum Capital.

The stockbroker, in a note, nudged higher its price target to 180p from 135p (current market price: 198p) whilst repeating a ‘sell’ recommendation.

Liberum analyst Gerard Khoo highlighted numerous challenges and what he called execution risks facing both the Royal Mail business and the GLS parcels and logistics business.

Whilst Khoo described GLS’s problems as “short-term tailwinds”, albeit losses in the United States are also a concern he added, the analyst reckoned it is the Royal Mail business that is more worrisome.

“At Royal Mail, the higher pay costs of the new CWU deal come through ahead of the benefits of working practice changes. Both revenue growth and successful execution are needed and the record on both is poor,” the analyst said.

Royal Mail is facing growing losses in the first half of 2023, he added.

“Current trading in the UK is weak, with parcel volumes still impacted by weak online retail sales (the value of which is flattered by high inflation),” Khoo explained.

“Letters have returned to their secular decline. Quality of service improvements and confirmation of industrial peace will be needed before the customers who defected during the strikes can be tempted back.

“On costs, the pay deal impacts immediately but most of the working practice changes and other cost/productivity initiatives do not kick in until H2.”

IDS last week reported results for its financial year, to the end of March, in which the postal firm swung into the red with Royal Mail contributing some £1 billion of losses.

On a reported basis, the FTSE 250-listed firm posted revenue in the year to 31 March 2023 of £12.04bn, down 5.3% from £12.71bn a year prior, alongside an operating loss of £748mln compared to a profit of £577mln the year before.

This comprised a reported loss in Royal Mail of £1.04bn compared to a £250mln profit a year earlier and a profit at its logistics arm GLS of £296mln, down from £327mln.

IDS took an impairment charge of £539mln as the carrying value of Royal Mail reduced to £900mln given the current risk backdrop and ongoing industrial dispute.

But it said it would be targeting a return to profitability in Royal Mail over the remaining two years of the recently agreed pay deal, with a return to adjusted operating profit (before voluntary redundancy costs) in 2024-25.

Nevertheless, the industrial relations drama doesn’t appear to be over for Royal Mail.

Yesterday, the balloting of Royal Mail workers over a proposed pay and conditions deal with the Communication Workers Union has been suspended, reviving tensions between management and staff.

It sent IDS shares down to a new six-month low.

“What has become clear is the environment we are attempting to deliver this agreement in remains toxic,” the CWU wrote in a statement.

[DirtyHarry]

It's shitheads like Gerard Khoo, working for leeches like Liberum Capital, that are turning the clock back for hard-working people.