IDS share price analysis: Good news for Royal Mail

International Distributions Services (LON: IDS) share price tilted upwards on Tuesday after a piece of good news from the UK. The stock rose to a high of 240p, a few points above this week’s low of 234p.

Good news for Royal Mail

IDS, Royal Mail’s parent company, has been a company under pressure in the past few years. The most recent challenge was strikes by the company’s employees. This ended a few months ago, with the firm, which is unprofitable, agreeing to raise wages.

As I have argued before, Royal Mail’s biggest challenge is how it operates and the laws it must follow. For one, like America’s USPS, the company is mandated to deliver mail and parcel across the country. While this gives it scale, it also makes it quite expensive to operate. 

Therefore, the company found a reprieve when OfCom, the regulator announced that it was reviewing options for the Universal Postal Service (UPS). UPS ensures that the company must deliver mail across the UK six days per week and parcels five days per week. The statement added:

“The number of letters we send and receive has declined by 46% over the last decade, as people and businesses increasingly use digital alternatives. And as the number of letters delivered each day falls, the average cost of delivery is increasing.”

Therefore, a likely solution will be a boost for Royal Mail Group. For one, it will help it reduce the costs of doing business as the management works towards profitability.

It will be in the interest of the government to reduce these regulations. For one, if the UPS laws remain, they will raise the possibility that Royal Mail continues being unprofitable. At some point, the company could go bankrupt and need a rescue package by the taxpayers.

IDS share price forecast

In my article on IDS, I wrote that the company lacks a clear catalyst. At the time, I predicted that the shares would crash to 200p, ~16% below where it was trading at. 

The announcement by Ofcom can be seen as a positive catalyst for the company. However, it is too early to predict how these new laws will impact it and whether the parliament will accept them. 

The shares dropped below the 25-period and 50-period moving averages. It also dropped below the support at 258.7p, the highest point on April 24th. 

The shares are about to form a death cross, where the 50-period and 200-period moving averages cross over. Therefore, the stock will likely continue falling as sellers target the key support at 200p. 

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