The IDS share price has staged a strong comeback lately as investors cheered its acquisition bid by David Kretinsky. Royal Mail (LON:IDSI) shares were trading at 322p on Tuesday, up by over 53% from its lowest point this year.
May 29th will be crucial
IDS, the giant postal company, faces a major deadline on Wednesday 29th when Kretinsky has to make a formal offer in his £5 billion deal. Therefore, there is a likelihood that the stock will either rise or fall depending on his statement.
If he confirms his deal, the stock will jump sharply since the company has a market cap of about £3 billion, much lower than Kretinsky’s deal of £5 billion. This valuation gap is also a reflection that most investors believe that Kretinsky faces an uphill battle to have the deal approved.
On the other hand, if he ends his acquisition bill, there is a likelihood that the stock will drop sharply because IDS faces significant risks. While the company’s board has minded the offer, it faces two key risks.
First, the UK is set to go to an election soon, which could complicate the acquisition because of how delicate Royal Mail is to the UK economy. The Labour Party has promised to safeguard the company. Second, unions have opposed the deal worrying that a private company could implement layoffs. Third,
Its financial results released last week showed that its total revenue rose slightly from £12.04 billion in 2022/23 to over £12.67 billion in the last financial year. Royal Mail’s revenue rose to over £7.8 billion while its GLS brand’s revenue jumped to over £4.8 billion.
The challenge is that the company is struggling to become profitable. Its loss before tax narrowed from over £110 million to £75 million. Also, the company’s cash outflow came in at over £73 million in the same period. It will be difficult to turn around IDS because of the rising costs of running Royal Mail.
IDS share price forecast
IDS chart by TradingView
The daily chart reveals that the IDS stock price bottomed at 209.6p in April and has now bounced back to over 300p. This surge happened after Kretinsky’s EP Group made a deal to acquire the company.
It has now jumped above the crucial resistance point at 290p, its highest swing in December last year and January this year. The stock has also formed a golden cross pattern as the 200-day and 50-day moving averages crossed each other.
Therefore, the stock will be highly volatile in the next few days. A final offer by EP Group will push the stock substantially higher or vice versa. The key support and resistance levels to watch will be 300p and 400p.
This article first appeared on Invezz.com
