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Royal Mail (IDS) share price forms a highly dangerous pattern

By: Invezz

IDS (LON: IDS) share price has crashed below a key support level in the past few weeks as concerns about Royal Mail rise. The stock retreated to a low of 239p on Monday, much lower than the year-to-date high of near 300p. It remains about 55% below its all-time high.

Royal Mail extinction debate

IDS is a big British company that employs hundreds of thousands of people. It operates in two key segments: Royal Mail and GLS. 

While Royal Mail is its best-known division, GLS is its most profitable one. Royal Mail has struggled in the past few years as the volume of letters sent in the UK has retreated. The volume of parcel growth is not growing as fast as competition in the industry rises.

The most recent results showed that Royal Mail’s revenue rose by 13.1% in the fourth quarter to £2.28 billion, helped by the parcels segment. GLS’s revenue rose by just 4.4% to £1.31 billion. However, GLS was the only profitable division.

IDS, through the help of Ofcom, is set to save more of its money in the coming months. If Ofcom has its way, it can help the company save as much as £650 million a year by reducing the number of mandatory delivery days to 3.

That is an important move since Royal Mail operates in a tough legal structure that forces it to deliver mail six days a week. It also has the mandate to deliver mail to remote and often unprofitable areas in the country.

The main challenge for Royal Mail is that its once highly profitable letters business is going through a decline that is not easy to recover. Total addressed letters dropped by 6% last quarter to 1.7 billion and the trend will continue. Will people be sending letters in the next decade?

Letters are an important part of IDS’s business. In the 9 months of the year, letters revenue stood at over £2.7 billion or 46% of the total Royal Mail revenue. As such, the division will need to increase its role in the parcel division, where competition is rife.

IDS share price forecastroyal mail

IDS chart by TradingView

Turning to the weekly chart, we see that the situation may get worse for Royal Mail. The stock has formed a bearish flag pattern, which is a popular bearish sign. This pattern is represented by a long vertical line and a rising channel.

The stock has now moved slightly below the lower side of this channel. It has remained below the 50-week and 100-week Exponential Moving Averages (EMA). Additionally, the Relative Strength Index (RSI) has moved below the neutral point.

The Stochastic Oscillator has moved below the oversold level. Therefore, the outlook for the stock is extremely bearish, with the next reference point to watch being at 174.35p, its lowest swing in October last year.

The post Royal Mail (IDS) share price forms a highly dangerous pattern appeared first on Invezz

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