The Royal Mail share price, now known as International Distributions Services PLC (LON: IDS), inched higher today despite the Communication Workers Union (CWU) saying that it would call for further strikes soon if it cannot reach an agreement with Royal Mail’s management at today’s crunch talks.
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Yet, as I have pointed out severally, Royal Mail (IDS) shares barely reacted to the news and were trading up slightly at the time of writing. The parcels company’s shareholders seem primarily unbothered by the daily losses incurred by Royal Mail.
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Royal Mail has warned investors that it is on track to book an annual loss of £350m-£400m this year, yet its shares have mainly remained stable despite the ongoing losses. The company’s management has threatened to declare insolvency and put Royal Mail into administration if it cannot agree to a deal with the CWU.
One of the reasons why Royal Mail shareholders are still confident in the company’s prospects is because of its other businesses. The Group also owns GLS, an international parcels business based in Amsterdam that is on course to generate adjusted operating profits of €370m to €410m in 2023.
Most analysts have already discounted the value of Royal Mail, IDS’s UK parcels and mail service, which operates under the universal service obligation to deliver to every UK address six days a week at a uniform price. This is the loss-making part of IDS’s business.
The lack of a significant reaction from Royal Mail shareholders whenever the CWU strikes or issues another strike notice is because most of them have written off the Royal Mail business. Most analysts ascribe a negative value to the business. Therefore, the Royal Mial business does not contribute much to the company’s market valuation.
Still, the Royal Mail Group’s future is hanging on a tightrope as the company’s management considers separating it from its other profitable businesses and even putting it into administration. The next few weeks will be crucial for the company.
Investors should closely follow the unfolding events between Royal Mail and the CWU, which will likely call for more strikes.
*This is not investment advice.
Royal Mail (IDS) share price chart.
The Royal Mail (IDS) share price has risen 4.38% this year despite the threat of strikes from the CWU.
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