Has the IDS share price created the value opportunity of the decade?

The trading year to 26 March 2023 was tough for International Distribution Services (LSE: IDS) and the share price was weak.

Business in the parcel delivery operation weakened after the boost it enjoyed during Covid. And the Royal Mail owner was beset by ongoing industrial action.

The outcome was a thumping great loss for the year. But something significant happened in the spring that may draw a line under the company’s troubles. And it could have created a floor for the share price.

In April 2023 the company announced it had reached an agreement with the Communication Workers Union (CWU).

An end to the troubles?

The 35-page national agreement between the CWU and the company covers all operations and functions across the business. And it was formally endorsed by the union’s postal executive.

Ballot papers regarding the agreement were sent to the union’s members on 22 June and the outcome is due to be announced on 11 July. So I reckon it’s a good time to focus on the stock right now.

With the share price near 234p, the price-to-book value is just under 0.6. And a reading below one suggests the valuation is less than the value of the firm’s assets. However, it’s always worth considering that assets may be worth less in reality than the figures shown in the accounts.

Yet City analysts are optimistic. They’ve pencilled in a robust recovery in earnings for the trading year to March 2025. And they think the shareholder dividend will likely increase by almost 60% that year.

But that projected increase arises because the directors stopped the final dividend for the year to March 2023. And that was because the poor performance of Royal Mail, and increased investment in GLS – its European parcels division.

Nevertheless, set against those analysts’ expectations, the forward-looking dividend yield is around 7.6% as I write.

The valuation indicators add up to a compelling situation. And the stock could be presenting investors with the value proposition of the decade. Although there’s still a lot of risk here.

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An optimistic outlook

In May’s preliminary full-year results report, Independent non-executive chair Keith Williams was optimistic.

The company now has more options to deliver change and progress has already been achieved in Royal Mail, Williams said. Following industrial action, IDS “served notice” in September 2022 on a number of historic CWU agreements and policies that were delaying transformation. And that allowed the company to move to a more modern industrial relations framework.

Williams reckons the move empowered IDS to move ahead with elements of its change programme during the second half of the trading year. And that meant the directors could complete revisions across all delivery and processing units and right-size the workforce to the current workload. And far fewer people left under voluntary redundancy than anticipated.

One positive outcome for the business is that IDS started the current trading year with 10,000 fewer full-time equivalent employees (FTE) employees than the previous year. And that looks set to reduce costs by around £150m in the current trading year.

As with most deep-value situations, the business looks messy. But we could be seeing the first green shoots of a meaningful turnaround with IDS. And I’m watching closely with a view to considering the shares for my portfolio.

The post Has the IDS share price created the value opportunity of the decade? appeared first on The Motley Fool UK.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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