The pros losing a fortune as Royal Mail (IDS) share price spikes

Shares of Royal Mail’s parent company, IDS, have gone vertical this week as investors cheered the ongoing reforms in the sector. They have jumped in the past four straight days and are now hovering near their highest point in 2023. In all, the IDS stock price has soared by almost 50% from its lowest point in 2023.

Royal Mail’s short interest has jumped

The surge in the stock is, obviously, a good thing for Royal Mail’s investors, including Daniel Kretinsky, its biggest shareholder. He owns over 27% of the company. Other investors have also made substantial returns in the past few months. Still, many long-term Royal Mail shareholders are in the red since the stock is down by over 47% from its highest point in 2021.

On the other hand, IDS short-sellers are feeling the heat as the stock makes a slow recovery. Besides, despite the rebound, IDS is the eighth most shorted UK stock after Petrofac, Kingfisher, Hargreaves Lansdown, Future, Burberry, Asos, and Tullow Oil. Data by Research Tree shows that it has a 5.47% short interest.

A look beneath the surface shows that a few investors are losing a fortune as this rebound intensifies. Adelphi Capital, which transitioned into a family office in 2022 after poor performance, has a 1.8% short position in IDS. The other big IDS shorts are companies like Pictet Asset Management, Egerton Capital, Eleva Capital, and JP Morgan Asset Management.

IDS stock price has jumped this week as signs emerged that the government will change its policy about the postal industry. This is in line with what I have written about many times before, as you can see here and here. 

The challenge for Royal Mail is that it operates in an outdated legal structure that forces it to operate six days a week. The structure also forces it to deliver mail to unprofitable places in the country.

Now, Ofcom has supported a move to reduce the number of delivery days to just three, a move that will save it 650 million pounds. It is unclear whether this rule will pass since Downing Street is opposing it.

IDS share price forecast

IDS chart by TradingView

It is unclear whether the ongoing Royal Mail share price surge will continue. Turning to the weekly chart, we see that the stock has remained in an ascending channel, which is shown in black. It has now moved to the upper side of this channel.

Worse, the stock has formed what looks like a bearish flag pattern, which is a red flag. On the positive side, the stock has remained above the 50-week moving average. Therefore, the outlook for the shares is neutral until it moves above the upper side of the channel.