International Distribution Services, also known for operating Royal Mail, have seen roughly a 60% drop in 2022.

Overview

International Distributions Services plc, trading as Royal Mail, is a British postal service and courier company. The company was originally established in 1516 as a government department but now it is well-known for its mail collection and delivery services throughout the UK. It owns and maintains the UK’s distinctive red pillar boxes. It is headquartered in London, England.

Financials

Looking at the 52 weeks ending March 2022 compared to 2021. Group revenue, driven by GLS, went up 0.6% year-on-year with a reported operating profit down 5.6%. Adjusted operating profit was up 8% due to improved profitability in Royal Mail. Royal Mail revenue was down 1.6% year-on-year reflecting changing consumer behaviour following the removal of lockdown restrictions and lower international volumes. Partially offset by the growth in test kits. However, it reported an adjusted operating profit of £416 million, up 20.9%, with an adjusted operating margin up 90 basis points to 4.9%. This was due to the benefits of restricting and non-people cost-saving programmes. Although, Royal Mail’s in-year trading cash flow pre-IFRS 16 fell to £178 million in 2022 versus £342 in 2021, and the Group’s (driven by GLS) net debt increased by more than double from (£457m) in 2021 to (£985m) in 2022.

Technicals

From a technical aspect, International Distributions Services is trading at £2.08 a share. Applying the Fibonacci retracement to the chart, towards the upside resistance sits at £2.10 then at £2.22 (50%) followed by further resistance at £2.33 (61.8%). Minor resistance sits between 2.12 and 2.13 which is the October swing high. Towards the downside, support sits at £2.02 then at £1.98 and then at £1.96. The £1.96 level corresponds with the 23.6% Fib level. A break below the 23.6% Fib may see the stock fall towards the £1.80-£1.90 price range. Looking at the technical indicators, MACD is currently positive and so is RSI as it reads 54.

Summary

Royal Mail’s revenue fell YoY as a result of changes in consumer behaviour and the removal of lockdown restrictions. Though it does not seem likely for any Covid restrictions to return, changes in consumer behaviour will certainly continue with the current economic crisis. The Bank of England warned last Thursday that Britain is facing its longest recession since records began, hence, consumers are very likely to reign in the spending all-around for a long period of time. Both the adjusted operating profit and the margin grew for Royal Mail itself, with profit by 20.9% and margin by 4.9%. However, for the full Group, in-year trading cash flow fell by £164 million and net debt went up by £528 million. The technicals are currently positive but the stock is still down 60% since the start of 2022, and with the current cost-of-living crisis and the economy itself, it may have a further negative impact within the next 2 years.