International Distributions Services shares fall as Royal Mail loses £1bn. What next?

So far today, International Distributions Services (LSE:IDS) shares are down 2.5%. This compounds the 6% move lower yesterday, following the release of the preminary results for the 2022/23 financial year. Clearly, the results haven’t been taken well by investors. But with the stock now down 39% over the past year, where does it head from here?

Dissecting the numbers

Group revenue came in at £12.04bn, down 5.3% from last year. With significant operating costs, it pushed the group to a loss before tax of £101m. This contrasts to the profit of £707m from the previous year.

The group contains both Royal Mail and also GLS (which predominantly operates in Europe). The difference looking at the details between both areas is large. For example, Royal Mail posted an operating loss of £1.04bn. GLS posted an operating profit of £296m.

The difference was blamed on industrial action at Royal Mail, lower planned productivity improvements and a weaker online retail market.

Investors do need to take the £1bn figure with a pinch of salt though. some £539m of this reported loss was due to an impairment charge on the carrying value of Royal Mail due to it’s problems. This doesn’t make things any better, in my opinion, but it should be noted that this £539m isn’t a cash loss.

Looking for optimism

There wasn’t a whole lot to be positive about in the report. Not only from the numbers, but any of the corporate actions from IDS over the course of the year so far.

GLS is clearly the bright spark that’s keeping the group going. For the year ahead, it’s expected to grow revenue by 3-5%. It serves both customers and businesses, and has a very good track record in Europe.

Royal Mail could potentially perform better in the coming years if the strategic overhaul is successful. I don’t like to jump the gun, but I feel there’s an imminent end to the industrial dispute coming, thanks to the negotiators agreement with the union. This should help to get workers less distracted and more focused on the job at hand.

Finally, with the recent resignation of Royal Mail chief executive Simon Thompson, it could be a fresh page for the business. A new stamp (pardon the pun) going forward could be just what the firm needs.

Share price direction from here

Until we get a positive trading update, I struggle to see the IDS share price heading anywhere but lower. At 203p, I wouldn’t rule out a fall in coming months back to the 52-week lows of 173p.

This is based on underperformance at Royal Mail, which hampers the entire group. Despite some saying that the stock looks undervalued, I think it could get even cheaper and so wouldn’t be suggesting that investors buy now.