Home Investing IDS share price is at risk amid rising Royal Mail bankruptcy fears

IDS share price is at risk amid rising Royal Mail bankruptcy fears

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IDS (LON: IDS) share price has been in a freefall in 2022 as the company fights for its life. The stock of Royal Mail’s parent company plunged to a low of 174.3p in October, which was about 67% below the highest level this year. Its market cap has plunged to about £2 billion.

Royal Mail could go bankrupt

International Distributions Services is the parent company of Royal Mail and GLS. The firm, which was a former monopoly, has had a difficult year this year as demand for its services increased and competition rose. 

It has also contended with stubborn workers who have been staging walkouts recently. They went to strike this week, a period that is expected to be busy for the letter and delivery company. Employees want better salaries as UK’s inflation remains at a multi-decade high.

IDS’s management has said that it will be almost impossible to hike wages considering that the firm’s business was seeing low demand. And in a letter seen by the Financial Times, the CEO asked the workers to join the management in saving the company. 

The management has also hinted that it will separate its business into two. In this case, the profitable GLS division will become separate from the loss-making Royal Mail. The current structure means that GLS typically helps to run the operations of the broader company.

Loss-making entity

Royal Mail share price also plunged as demand for its letters and parcel business dwindled after doing well during the pandemic. As a result, the company has moved into a loss-making territory. The management has warned that the company was losing £1 million per day.

The most recent results showed that the company’s revenue in the first half of the year dropped by 3.9% to £5.3 billion. Its loss before tax widened to £127 million. Its GLS revenue rose by 9.5% to £2.2 billion. It expects that its full-year loss will be over £450 million. The CEO said:

“GLS has adapted well to inflationary pressures across its geographies. However, we have been standing at a crossroads with CWU in the UK for several months. We are now heading in a clear direction in light of the substantial losses in Royal Mail.”

Worse, the company’s letter business is struggling as the number of people sending mail dwindled. The company is still mandated to deliver letters six days per week

Therefore, analysts warn that Royal Mail could go bankrupt in the coming months unless serious changes happen. They note that Royal Mail has over 158k employees, which is higher than similar companies of its size.

Therefore, in light of this crisis, it would be hard to recommend IDS as a valuable investment. Its business will continue struggling as the strikes continue. Also, as I wrote here, analysts warn that separating GLS from Royal Mail will not be easy because of how integrated the two businesses are.

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