Its been a good month for this FTSE 250 company with its shares up by almost a quarter. We assess prospects.
First-quarter trading update to late June
- UK Royal Mail revenue down 4% to £1.8 billion
- Overseas or General Logistics Systems (GLS) revenue up 7.4% to £1.2 billion
- Total group revenue up 0.3% to £3 billion
- Continues to target an overall group adjusted operating profit for the current full year
Royal Mail owner International Distributions Services (LSE:IDS) today announced the appointment of a new chief executive as it detailed a small gain in first-quarter sales.
Former Deutsche Post AG ADR (XETRA:DPWA) executive and current head of its overseas General Logistics Systems (GLS) business, Martin Seidenberg will take charge of the entire company in August. New heads for both GLS and Royal Mail will then be appointed.
Shares in the FTSE 250 company rose by more than 2% in UK trading having come into this latest news down around 6% over the last year. That compares to a near one fifth gain for Deutsche Post and a marginal gain for the FTSE 250 index itself over that time.
A 7.4% increase in revenues for GLS during the quarter offset a 4% fall for the UK Royal Mail business. Seidenberg has headed up the GLS business since June 2020.
Under Mr Seidenberg, GLS has grown revenues and adjusted operating profit by 47% and 67% respectively over the last three years.
The new CEO appointment comes just weeks after IDS and the Communication Workers Union (CWU) agreed a business recovery, transformation and growth agreement deal including staff pay rises.
First-half results are scheduled for 16 November.
International Distributions Services operates via both a UK and overseas business. Brands for its UK focused Royal Mail business include Parcelforce with the division being the UK’s sole designated Universal Service Provider and providing a ‘one-price-goes-anywhere’ service on a range of letters and parcels. The GLS business works overseas in around 40 countries including more than 30 in Europe, Canada, and a selection of states in the USA.
For investors, management’s desire to reform its Universal Service Obligation with the government cannot be forgotten. Management’s long-awaited desire to right size and improve productivity at Royal Mail is still largely to be executed. Costs generally for businesses also remain elevated, while losses in its last financial year meant no final dividend.
- Where to invest in Q3 2023? Four experts have their say
- Daily Trading Flash: 10 most-traded shares 20 July 2023
- UK equity market valuations at ‘embarrassing’ levels
More favourably, the promotion of its GLS head to overall CEO will hopefully inject renewed vigour and direction into the group-wide strategy. A long-waited deal with the CWU hopefully opens the door to increase productivity, cost such as fuel may now have peaked, while an overall group return to profitability could see the dividend restored.
There is still a great deal of work to be done here, and there are numerous issues still to tackle, but at least firmer foundations appear to have been laid which might convince shareholders to stick with the shares.
- Exposure to online shopping trends
- Geographical diversity
- Elevated costs
- Falling letter volumes
The average rating of stock market analysts:
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.