It has formed a rising wedge pattern on the daily chart.
The stock will likely have a bearish breakdown in the coming months.
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Royal Mail (LON: IDS) share price has moved sideways in the past few weeks as investors digest the deal between the company and the union. IDS shares were trading at 246p on Tuesday, where they have been for the most part of the year.
The biggest Royal Mail news was reports that the company’s CEO, Simon Thomson was planning to step down within weeks. According to Sky News, the company’s board believes that the company needs a new leader after Thomson’s tumultuous two year stint.
Thomson leaves his post a few weeks after the company reached an agreement with its unions on a return to work formula. The new formula called for a 10% pay increase and a lump sum payment of £500 to all employees. The new pay increase and bonus will benefit 120k out of 140k employees.
Other parts of the deal call for the company to abandon the concept of owner-drivers and remove compulsory Sunday working. It is still unclear whether the members will approve the new deal.
As I wrote in this article, IDS needs major changes to avoid going bankrupt in the coming years. The most important change will be to adjust the number of workers since the company is vastly overstaffed. The company makes less money per employee compared to other companies in the industry like Deutsche Post and USPS. In 2022, the company made plans to lay off 10,000 employees.
Further, the company needs a change in policies to ensure that it can compete well with other companies. For example, it needs more leeway about the number of delivery days and areas where it can deliver profitably.
So, is it safe to buy Royal Mail shares? The daily chart shows that the IDS share price has been in a consolidation phase in the past few weeks. It has drifted upwards from last year’s low of 173.75p to a high of 262p. This recovery happened even as the company sunk into a loss.
The shares have formed a rising wedge pattern and is consolidating at the 25-day and 50-day moving averages. Now, with the triangle nearing its peak, I expect that the shares will have a bearish breakdown in the coming weeks. If this happens, the shares will likely retest last year’s low of 173p.
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