Can Royal Mail owner IDS edge back towards profitability? By Proactive Investors

Proactive Investors – When Royal Mail (LON:) owner International Distributions Services PLC (LSE:IDS) (IDS) presents a first-quarter update on Thursday 20 July, the support service group will be hoping to return to a profit that can help offset the troubles caused by a lengthy battle with union members.

For the full financial year, the postal service group is hoping to report underlying profits of £66mln compared to last year’s pre-tax loss of around £110mln.

Consensus expects Royal Mail’s operations to post a full-year loss of £300mln, offset by a profit at the group’s international business GLS.

It will be harder to achieve this now union workers agreed on a deal which sees staff pay rise by 8% over the next two years.

Although the prospect of no more disruptive strikes from workers will be enough to improve the mood of the group’s management.

Yet, analysts at Liberum believe “things will get worse before they get better” in relation to the pay deal, noting the rising costs of the increased salaries would be felt by IDS immediately.

Matt Britzman at Hargreaves Lansdown (LON:) said: “It’s been difficult to find too much to get excited about at IDS recently.

“Fixing the relationship with workers is one thing, bringing growth back to the underlying operation is another – there’s a lot to do.”

He believes real estate disposals could counteract cash outflows for Royal Mail, but warned the tough macro environment was dampening trading volumes for the whole group.

On top of all these hurdles, Royal Mail is still in search of a new chief executive officer after current boss Simon Thompson confirmed in May he would be stepping down.

Shares in IDS are up over 15% in the year-to-date, having been trading at around the 250p mark.

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