The Royal Mail share price, also known as International Distributions Services PLC (LON: IDS), has fallen 13.74% in the past month despite the parcels company reaching a pay agreement with the Communication Workers Union (CWU).
YOUR CAPITAL IS AT RISK. 76% OF RETAIL CFD ACCOUNTS LOSE MONEY.
The parcels and letters delivery company was recently dealt another blow after the government refused to change its Universal Service Obligation (USO) that requires it to deliver letters and parcels six days a week. The company has been fighting for this change, but the government is not budging.
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YOUR CAPITAL IS AT RISK. 76% OF RETAIL CFD ACCOUNTS LOSE MONEY
Royal Mail estimates it could save up to £250 million per year if it cut its working days from six to five. However, through Business Minister Kevin Hollinrake, the government reiterated its position on the USO, saying, “The ability to send and receive letters and parcels is important both socially and economically.”
The USO will continue being a thorn in the flesh for Royal Mail, which still insists that the need for six-day deliveries is financially unsustainable over the long run. If the government continues insisting on the USO, it might have to step in and financially back Royal Mail.
The company, which has been around for 507 years, was privatised in 2013 and was mandated to maintain the Universal Service Obligation (USO) as a condition of privatisation. At the moment, Royal Mail is a loss-making entity, having lost £1.04 billion during the 12 months to March 26, a far departure from the £250 million profit recorded in 2021.
Royal Mail’s loss-making streak is unsustainable, and the company must explore other options to remain in business. Given that Royal Mail is part of IDS, there has been talk about the profitable GLS international business being spun off from Royal Mail.
The GLS business is profitable and should be supported by Royal Mail, which has numerous problems, including the workers' pay dispute. The company’s future remains uncertain as the Royal Mail CEO, Simon Thompson, is set to step down in a few months.
Therefore, I would stay away from Royal Mail (LON: IDS) shares, given the current predicament.
*This is not investment advice.
The Royal Mail (LON: IDS) share price.
The Royal Mail (LON: IDS) share price is down 13.74% in the past month as the situation worsens.
YOUR CAPITAL IS AT RISK. 76% OF RETAIL CFD ACCOUNTS LOSE MONEY.