Royal Mail owner International Distributions Services PLC (LSE:IDS) (IDS) will continue to ‘leak value’ in the absence of a proper plan to restructure the British side of the business, that’s the view of stockbroker Liberum Capital.
Analyst Gerald Khoo, in a note reacting to a Sunday Times interview with former Royal Mail chief executive Rico Back, repeated a ‘sell’ recommendation on IDS shares with a price target of 115p.
In the Times interview, discussing a speculated potential break-up of Royal Mail and its logistics unit GLS, Back said: “It’s too easy to say, ‘I’ll sell GLS and then the UK business will be fixed by a miracle.’ Why should it be fixed when you sell GLS? You can find buyers for GLS because it’s a great asset, but then you’d get stuck in the UK business.”
The Liberum analyst said these comments echo the broker's own view on IDS and its investment case.
“Our view remains that at best the sale of GLS might release capital for a major restructuring of Royal Mail UK, but this requirement to recapitalise the UK business significantly dilutes the value available for shareholders from GLS,” Khoo added
“Without a clear and deliverable strategy to restructure the UK, there will be continued leakage of value from GLS," he said.
The Liberum 115p price target for IDS suggests the Royal Mail owner could almost halve in value from its current price of 219.15p.