International Distributions Services (LON: IDS) share price has staged a strong recovery this week as investors cheer the recent actions by Royal Mail. The stock surged to a high of 240.8p on Thursday, its highest point since March 11th. Still, it remains about 18.8% below the highest point this year, meaning that it is highest point this year.

IDS, the parent company of Royal Mail and General Logistics Systems, has been under intense pressure in the past few years. The company has struggled as concerns about its business strategy at a time when growth is slowing and costs remain at an elevated level.

On the positive side, there have been a ray of light in the past few months. Earlier this year, Ofcom, the country’s communications regulator, said that it supported efforts to modernise Royal Mail. 

As part of the proposal, the regulator said that it would support approaches like reducing the number of delivery days and introducing changes to the First Class, Second Class, and business products. Also, the agency proposed reducing the number of delivery days from six to three.

In a statement on Wednesday, Royal Mail said that it would support deliveries of second-class letters three times a week. Analysts estimate that the proposal would lead to over 1,000 job cuts by the company. 

These reforms are necessary because Royal Mail finds itself in a difficult situation as the number of letters sent in the UK drops. They have fallen from over 20 billion to about 7 billion in the past 20 years and this trend will continue.

Royal Mail is also highly regulated, meaning that it has to deliver letters to the most remote countries in the UK. Unlike other companies, it cannot increase prices without seeking permission from the regulator.

Therefore, this proposal, if accepted, will help the company save money in the long term. The most recent results showed that the company’s letter business saw its revenue drop by 8% in the nine months to December to £5.05 billion. GLS, on the other hand, saw its revenue rise by 5% to £678 million.

The IDS share price has also risen after the company appointed a new Chief Executive Officer this week. Emma Gilthorpe, a former executive at Heathrow Airport will take over from Martin Seidenberg.

She comes at a time when the company is attempting to implement a turnaround at a time when its letter and parcel business is slowing.

IDS chart by TradingView

In my last article on IDS, I warned that the stock would have a strong bearish breakout, citing the bearish flag pattern that has been forming. 

On the daily chart, the stock has moved below the lower side of this pattern. It has remained below the 50-day Exponential Moving Average. 

Recently, the stock has rebounded from 213p to 240p. This is a sign that it is about to form a break-and-retest pattern, which is a sign of a bearish continuation. As such, it could rise and retest the lower side of the ascending channel at 250p and then resume the bearish trend.

The post Here’s why the Royal Mail (IDS) share price is pumping appeared first on Invezz