Essensys into negative earnings as domestic market disappoints

The tumult experienced in commercial property markets over the past 18 months doesn’t appear to have put off investment in the flexible workspace sector. The investment appeal is understandable given that many companies still haven't worked out a long-term hybrid working plan and what it means for their own office footprints. Essensys (ESYS), a software-as-a-service (SaaS) operator, is intent on seizing the opportunity, illustrated by a recent £33m equity raise to support geographical expansion.

The push into overseas markets is understandable given the global growth of SaaS, although it opens up the provider to other risks. Indeed, annual revenues were held in check due to adverse currency fluctuations, but it's also worth noting that domestic UK sales were 13 per cent down on FY2020. The percentage of recurring revenues at 87 per cent was broadly flat on the prior year. Group administrative expenses jumped by 20 per cent, with staff costs rising by 40 per cent as the group brought in new executives, including new heads for its North America and Asia-Pacific businesses. The equity raise meant it closed the year with £36.9m of cash (ex-liabilities), which it claims is enough for “the foreseeable future”, although it's worth mentioning that the group recorded a net outflow of £12.7m in financing activities when proceeds from the issuance of new shares are discounted. 

Analysts at Berenberg make the point that financial performance has deteriorated through "a reduction in marketplace revenues due to lower occupancy levels". Essensys operates in a growth section of the economy, but the shape and extent of the market opportunity is difficult to gauge given ongoing clinical uncertainties linked to the virus. The broker envisages a net earnings loss of 22.7p even though sales are forecast to rise by 28 per cent. And while the group trades on a discount to peers on an enterprise/sales basis, we remain circumspect. Hold.

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