Royal Mail owner faces "lots of execution risk", Deutsche Bank

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https://www.proactiveinvestors.co.uk/co ... 16068.html

Royal Mail’s owner International Distributions Services PLC (LSE:IDS) (IDS) still faces numerous execution risks and lacks detail in its plans, according to analysts at Deutsche Bank AG (NYSE:DB).

The investment bank rates the stock a ‘sell’ arguing its exit rate in its most recent full-year results was “weaker than expected”.

Losses are expected to worsen throughout the first half of the 2024 financial year before a “much better second half”, Deutsche Bank added.

The main concerns for the postal service’s future arise from ‘execution risks’ as the group looks to return to profitability in the next two years.

In particular, the company could struggle with extracting cost efficiencies in the near future, as increasing wages and rising input expenditures put more pressure on the firm.

“The company has a mixed track record of reducing costs,” the German bank noted.

There are also concerns that the group has not appointed a new chief executive officer yet after Simon Thompson resigned from the top role earlier this month.

Recovering revenues lost from the 18 days of strike action in the last year, which is estimated to have cost the group £300mln, is another worry.

A vote for a new pay deal with the Communication Workers Union was suspended on Wednesday, reigniting tension between staff and management that could result in yet more industrial action.

Deutsche Bank also noted that IDS will need to recoup the £20mln in revenues lost from the cyber-attack the firm suffered earlier this year.

The lender has given the company a 160p share price target, a sizeable discount from Thursday’s opening value of around 193p.