In October 2022, Royal Mail shares were relisted under a new name – International Distribution Services (LSE:IDS). The shares IDS are currently trading at 245.8p. In the past two years, the share has been following a bearish momentum. From a peak price of 591p, the stock has lost 59% of its share value till today.
Let’s explore how much I could have made if I had invested £1,000 in 2020.
Key points
- Royal Mail changed its name to International Distribution Services in October 2022.
- Royal Mail shares have gone from a peak of 591p to a low of 245.8p in the past two years.
- A £1,000 invested in 2020 would have grown into £1,113
Fate to the rescue
The parcel delivery company has an interesting story behind its strong position today.
It was running towards downfall due to the declining letters market. In addition to it, it was also sluggish in adapting to changes in trends of online shopping and parcel delivery. Since fate was on the delivery firm’s side, the pandemic-driven boom in e-commerce became its saviour. Not only was Royal Mail able to earn an improved financial status, but its shares also skyrocketed.
£1,000 of Royal Mail shares in 2020
After making a jaw-dropping comeback post-pandemic, the growth of International Distribution Services has been sluggish. As I’ve already said, the firm has had astounding growth in the months following the pandemic. At the start of 2020, original Royal Mail shares were trading at 220.8p. The share price rose to a jaw-dropping 591p by June 2021. However, after this peak, the share reversed its course path and has been declining since then.
International Distribution Services stock entered 2023 for 213p, representing a 63% decline in share value. The delivery company’s stock has been able to maintain its share price and last closed at 245.8p.
That means a £1,000 investment at the start of 2020 would have grown into roughly £1,113 today, assuming I held the shares for this long. I would have earned £133 in capital gain on my investment, ignoring all fees and taxes. And it gets bigger when it includes dividends.
Financial growth
In the 2021 fiscal year, the post-pandemic year, reported a whopping £12.6bn in sales. The recent first quarter report for the 2023 fiscal year reported a £3 bn in sales. Royal Mail contributed 60% of the total revenue. Parcel delivery contributed 31% towards revenue.
Domestic parcel volumes broadly as expected, with slightly weaker revenue performance due to price/mix and lower test kit volumes. Focus, in this quarter, remained on improving the quality of service, including targeted recruitment, effective management of sick absence, and deployment of a “nerve centre” to support most impacted units.
The future of International Distribution Services shares
Before the pandemic, an investment in International Distribution Services would not have been a good investment, given its past performance. But, the outstanding growth after the pandemic may have turned the cards, thanks to management adapting its business model. At least, that’s what I think.
While the company showed outstanding growth in the post-pandemic period, the recent performance has troubled investors again. No doubt, the domestic parcel segment has shown continued growth. But what’s important to consider is whether the company be able to maintain revenue growth while maintaining a healthy cash position.
The risks
No doubt, the business is progressing and adapting to the change, but the concern is the increased number of complaints from customers. As reported by the Guardian1, there has been a 50% increase in complaints in the last year. And it’s reached higher than one million following the delays in deliveries to over 120 postal districts in the UK.
Moreover, the prolonged worker’s strike further aggravated the company’s footing. Going forward, how the company manages this situation is a big contributing factor toward the recovery of the company’s stock. Without a doubt, the initial reports are encouraging. But the stock could remain volatile until the situation becomes more clear.
Final thoughts
Royal Mail shares outstanding comeback is an interesting story to dig into. However, I feel investors need to be careful about the post-recovery downfall this company faced.
The company continued to see growth in the domestic parcels segment despite challenges across other areas. However, the future path of its stock movement is highly dependent upon the conclusion of the ongoing industrial disputes. Till that happens, I am unsure of the future of International Distribution Services share. Therefore, I’m personally not tempted to add any shares to my portfolio today.
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Article sources
Saima Naveed does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and therefore may differ from the opinions of analysts in The Money Cog Premium services.
