As postal strikes wreak havoc, is now the time to buy IDS shares?

International Distribution Services (LSE:IDS) shares have endured a turbulent 2022. The company, formerly Royal Mail, is a UK-based postal services operator. And anyone keeping an eye on the news will be aware that things aren’t rosy for the firm.

In fact, the company gave me my first taste of the 1970s earlier this week when I visited for a passport application. After queuing in the freezing cold, because of a staff shortage, we were informed that only machine services were working that day.

So, as postal strikes grip the UK, is now the time to buy IDS shares?

Light at the end of the tunnel?

2022 hasn’t been a good year for IDS. In the six months to September, It swung to a half-year loss, blaming weak parcel volumes and strikes at the UK postal carrier, Royal Mail.

Revenue dropped by 3.9% versus 2021, and pre-tax losses came in at £127m, compared with a profit of £315m a year earlier.

With strikes continuing through the busy festive period — when demand and revenue should be highest — it seems likely that the firm will swing to a full-year loss.

The Royal Mail business is expected to make a full-year adjusted operating loss of around £350m-£450m. This figure includes the impact of industrial action but excluding any charges for redundancy costs.

But losses in the first half stem from weaker parcel delivery demand and an inability to deliver productivity improvements.

The fall in parcel volumes is particularly damaging as they’re higher margin than letters and the firm saw parcel demand swell during the pandemic.

The pandemic provided Royal Mail with the chance to speed up its transition to parcels, and falling demand now appears to represent a step backward. Prior to the pandemic, the majority of parcels being processed were sorted by hand. But now, that number is closer to 50%.

So, in many respects, the current environment looks pretty challenging for IDS.

Would I consider buying IDS stock?

I already own some IDS stock. But would I buy more? I’m not sure, but there are some positives.

The first thing to note is that Royal Mail is just one of the company’s businesses. The second major business is General Logistics Systems (GLS).

In a recent update, guidance was maintained for GLS to deliver high single-digit revenue growth and an adjusted operating profit of between €370m and €410m.

As such, analysts expect IDS to make a loss of around £33m for the year to 31 March 2023. That’s obviously not great, but given the incredibly challenging environment in the UK, it could be worse.

However, these losses could threaten the 6.5% dividend yield. Its dividend cover currently stands at minus two times, and that’s hugely problematic for the balance sheet.

I’m a little split on whether to buy more of this one. Down 55% over 12 months, could it be seen as a bargain? Berenberg has a ‘buy’ rating with a price target of £3.70, indicating an 80% upside.

However, Liberum has a ‘sell’ rating, questioning the management’s ability to successfully execute restructuring “and reap the associated benefits“.

Right now, I’m holding off buying more. But I’ll keep an eye on how the industrial action progresses and restructuring efforts, including a possible move to a five-day delivery service.