Royal Mail-owner International Distributions Services PLC is now in a cash preservation mode as losses mount, according to Barclays.
“No interim dividend to be paid, and while management has said it will look at the potential to pay a final dividend funded by GLS, we believe this is unlikely given the group’s challenging near term earnings prospects,” the broker said.
Indeed, the broker cautioned that despite moves today to improve cash flow through tighter cash management and the cancellation of £100mln in Royal Mail capex in full-year 2023 “this may still be insufficient in our view to address the significant increase in the group’s leverage”.
First-half numbers were in line with the broker's expectations but the uncertain macro-economic environment and ongoing union dispute create an uncertain and challenging operating backdrop, it said.
“While we remain supportive on the prospect of restructuring Royal Mail to efficiently address the e-commerce structural opportunity, we see significant headwinds ahead” although “a constructive resolution of the union dispute, would ideally allow the company to set off on a path of a sustainable multi-year structural reform”, the broker stated.
The first-half EBIT loss of £57mln was driven by a weak performance at Royal Mail where an EBIT loss of £213mln was in line with the pre-release on 13 October, analysts wrote.
Management has maintained the guidance for a full-year EBIT loss between £350mln to £450mln despite the further planned strikes, which Barclays suggested meant customer retention has been higher than expected during this period, probably due to industry capacity constraints during the peak season.
Barclays has an equal weight rating on IDS with a 250p price target.