The International Distribution Services (LSE:IDS) share price is down 14% today, trading around 180p. For those not familiar, this is the rebranded name of Royal Mail. Following the latest news around job cuts at Royal Mail, IDS shares are tumbling. In reaching fresh 52-week lows, is this the time for me to buy, or not touch it with a barge pole?
A dismal trading update
The main news driving this move lower is confirmation of a bleak outlook in a fresh trading update. The H1 adjusted operating loss was £219m, only slightly smaller than the previous year’s £235m. Even though it’s an improvement, the main message here is that the business is still losing money, with little changing from last year.
As a result, the group is going to be restructuring with an estimated headcount reduction of 5,000-6,000 job cuts by August next year. In part, this is also due to the impact of industrial action, which it says will have a direct negative impact of £70m. That figure is based on three days of action. Should more strikes happen, the company notes that a larger loss could be seen.
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The tussle with the union has escalated in recent months and is providing a real problem for both sides. In the trading update, it “urges CWU to immediately call off planned strike action and embrace our offer of Acas talks to urgently find a resolution to the current dispute”.
It’s within the rights of workers to strike and lobby for better pay and working conditions. However, the company is taking a tough stance. Ultimately, the friction is hurting the share price and the firm finances.
IDS shares at the mercy of Royal Mail
I should remember that IDS doesn’t just contain the Royal Mail division. It also houses GLS, which is the non-UK postal and delivery service operating in Europe. This business is still performing well and is expected to make a full-year adjusted operating profit of between £336m.
So even though the woes of Royal Mail are well publicised, I do need to understand that at a group level some of the negative performance can be offset. However, from the market reaction today I think that some investors aren’t taking this into account.
I think shows that the main mover for the share price at the moment is investor sentiment. I can look at the numbers and preach about how attractive the price-to-earnings ratio looks at 3.5. Or how juicy the dividend yield appears to be at 7.37%.
Yet what the share price movement boils down to is how comfortable people feel in owning part of a company that’s going to be laying off thousands of people in the coming few months and aggressively cutting costs. It’s clear from the tumble today that investors aren’t running to buy this dip. Therefore, I’m going to stay away too.
