Royal Mail owner International Distributions Services PLC (LSE:IDS) remains a ‘sell’ for Liberum analysts due to sliding revenues and pay-dispute challenges.
IDS’ long-term issues continue to stem from high labour costs, said analyst Gerald Khoo, suggesting “it needs a combination of revenue growth and productivity improvements” to mitigate this.
“The pandemic brought a brief boost to revenue growth, allowing margins to improve in 2021 and 2022.
“However, this benefit has now unwound fully.”
UK arm Royal Mail’s annual revenue has dropped to around the £7.7bn mark on a quarterly rolling basis, Khoo adds, a level last seen in March 2020 and before the lockdown surge.
It is unlikely any deal to resolve the ongoing pay dispute with the Communication Workers Union would help, suggested Khoo.
“Even if the union were to capitulate, we would have doubts about management’s ability to successfully deliver restructuring,” he said.
“The group’s recent track record on successfully implementing and reaping the benefits from restructuring is not reassuring.”
Liberum raised IDS’ share price target from 115p to 135p despite this, citing lower than expected costs from industrial action, which sit at £200mln so far.
On the back of this, the investment bank forecasted IDS to see full-year losses of £221mln, 30% lower than its original estimate of £314mln.
IDS’ share price was down 1.5% on Monday morning to 227p.