International Distributions Services Plc shares jumped the most in four months after the Royal Mail parent reached an agreement in principle with the Communication Workers Union following a year-long dispute over pay.
(Bloomberg) — International Distributions Services Plc shares jumped the most in four months after the Royal Mail parent reached an agreement in principle with the Communication Workers Union following a year-long dispute over pay.
IDS rose as much as 7.5% after the pact was announced in a joint statement at the weekend, bringing relief to investors as the standoff has hindered attempts to make 500-year-old Royal Mail more efficient through automation and flexible shift patterns. Strikes have also put the company’s share of the UK parcel market at risk.
Monday’s gain trimmed IDS’s one-year decline to about 25%. However, the fine print hasn’t yet been revealed, and Gerald Khoo, an analyst at Liberum Capital Ltd., cautioned that the company may have had to make significant concessions. He continues to recommend selling the shares.
“We don’t yet know what Royal Mail has had to concede,” Khoo said in written comments. Moreover, the protracted dispute has created “animosity,” which may still harm efforts to improve efficiency, he said.
IDS shares have lost 60% of their value since a June 2021 high, when they were boosted by a boom in deliveries of goods bought online during Covid-19 lockdowns. Shareholders that were hoping a union agreement will mark a turning point for the stock may yet be disappointed.
JPMorgan Chase & Co.’s Sam Bland — who assigns no value to IDS’s UK business — sees a risk that the firm misses estimates for fiscal 2024 earnings. The analyst, who has a neutral rating on the stock, cited a decline in parcel volumes and delayed cost savings, while adding that terms of the union pact could be worse-than-expected.
“We view the main question from here as being: does this agreement give the UK business a reasonable prospect of being sustainably profitable over time,” he wrote in a note. “We aren’t yet sure what the answer is.”
(Adds JPMorgan comment, updates share price.)
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