Proactive Investors - Liberum has issued a "sell" recommendation for International Distributions Services PLC, the parent company of Royal Mail (LON:IDSI), citing a slower-than-expected recovery and ongoing market challenges.
With a target price set at 180 pence, the investment bank's analysis underscores deep concerns about Royal Mail's ability to achieve significant revenue growth and improve productivity in a highly competitive and evolving market.
The core of Liberum's cautionary stance lies in the persistent hurdles facing Royal Mail. Despite the end of industrial action and strategic investments, the company's recovery trajectory remains tepid.
Historically, Royal Mail has struggled to achieve meaningful revenue growth since its privatisation in 2013, with the fastest rate being only 1.6% year-over-year in the fiscal year 2020.
This sluggish growth is further compounded by the competitive nature of the UK parcels market and the structural decline in letter volumes.
Moreover, productivity improvements at Royal Mail are limited by its size and complexity. As a large national organisation with a workforce of 153,000 as of September 2023, implementing changes consistently across the board remains a significant challenge. Historically, the company has not exceeded 3% in productivity improvements annually since its privatisation.
Liberum's analysis also points to the risk of Amazon (NASDAQ:AMZN) opening its in-house delivery network to more retailers, which could further intensify competition.
Additionally, it points out that price increases by Royal Mail are being offset by customers opting for slower, lower-revenue products, raising questions about the company's pricing strategy effectiveness.
In afternoon trade, the stock was off 1.6p at 240.4p.