17th Apr 2023 11:00
(Alliance News) - Shares in Royal Mail-parent International Distributions Services PLC rallied on Monday morning on news that the postal service and union leaders have come to an agreement after a long and bitter dispute over pay, jobs and conditions.
Shares in the firm climbed 4.9% to 243.00 pence in London.
According to a joint statement, released on Saturday, Royal Mail said it had reached a negotiators' agreement in principle with the Communication Workers' Union.
The statement said: "After almost a year of talks, Royal Mail and the Communication Workers' Union are pleased to announce they have reached a negotiators' agreement in principle.
"The proposed agreement will now be considered by the executive of the union before being voted on by the union's membership.
"An announcement on the detailed content of the proposed agreement will be made when it is ratified by the union's executive committee. It is expected this will take place next week."
For Victoria Scholar, head of investment at interactive investor, the agreement marks an end to the period of "heightened uncertainty" for Royal Mail, which faced a series of nationwide strikes involving over 110,000 postal staff last year.
"If the agreement marks an end to the recent strike action, this will be a major win for the company as it looks to shift its workers dispute to the rear-view mirror," she said.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, explained that the walk-outs have put IDS into a precarious position in terms of liquidity.
"It's delayed the group's attempt to re-size operations in the face of falling letter and parcel volumes and has meant the group will only have limited breathing room when it comes to its loan agreements. The breakthrough will be a huge relief, but still needs to pass hurdles of approval by the union's executives and the members. Even once the heavy bag of industrial strife has been offloaded, the group faces a long road back to profitability," Streeter cautioned.
Back in January, IDS reported a fall in Royal Mail revenue in the nine months to December 31, blaming strike action by the CWU for being responsible for over two thirds of Royal Mail's adjusted operating loss.
Revenue at the unit was down 13% year-on-year due to weaker retail trends and 18 strike days during the nine month period. Adjusted operating loss totalled GBP295 million, of which 68% - around GBP200 million - was due to the net cost of the strikes, IDS said.
IDS said at the time it expected an adjusted operating loss "around the mid-point" between GBP350 million and GBP450 million for Royal Mail in financial 2023, assuming no further strikes and that the CWU accepts a pay settlement which IDS said was its "final pay offer".
In financial year 2022, Royal Mail posted an adjusted operating profit of GBP758 million.
Liberum analyst Gerald Khoo said: "We do not yet know what concessions Royal Mail management has had to make to get this deal over the line, but they are likely to be considerable. Even with a deal in hand, the execution and implementation risk is very high, in our view.
"Royal Mail's management's recent track record on implementing restructuring and delivering productivity is poor, and this was before the year-long dispute. It will take a long time for productive working relationship to be re-established between staff and managers at the local level."
Consequently, Khoo said he remains "sceptical" about the prospects of Royal Mail being turned around successfully.
"We see continued risk of value leakage from the profitable growing GLS division. In our view, the current share price ignores that completely. Our recommendation remains 'sell', with a target price of 135p based on our [sum of the parts] valuation with an ongoing negative value for the UK division."
By Heather Rydings, Alliance News senior economics reporter
Comments and questions to [email protected]
Copyright 2023 Alliance News Ltd. All Rights Reserved.
Related Shares:
International Distributions Services