Essensys still some way off profitability

Essensys’ (ESYS) share price has been showing some signs of recovery over the last few weeks after falling off a cliff at the start of March.

However, profits for the company, which provides software to flexible workspace operators, are elusive and will remain so for a few more years, according to chief executive Mark Furness.

Essensys' pre-tax loss widened to £4.72mn for the six months to 31 January, from £1.65mn in the same period last year, with administrative costs climbing 51 per cent as it increased hiring in the US and Asia Pacific regions, including a number of key roles.

“The loss that we posted was a little bit less than the loss we expected to post based on our plan,” he said. He expects the company will turn a profit in 2024 once a “critical mass” of flexible workspace operators adopt the company's software.

Getting to this stage is proving to be difficult. An announcement on 1 March that Essensys’ momentum had been “offset [...] by the unexpected loss of a UK customer” explains why the stock plummeted at the beginning of March. Such setbacks can be amplified at this end of the market.

“I don’t think about how the markets react to stuff. I can only control what’s in the world of Essensys,” Furness said, providing cold comfort for shareholders.

The company certainly has potential given changes in working patterns, and it holds £27.1mn in net cash following a £33mn fundraising in July 2021, which it intends to spend on marketing in new geographies, improving its product and hiring more people. Some of the names it has on board already speak to how big a player it could become: JLL, Cushman & Wakefield and Blackstone’s office investment arm EQ are among its customers.

Although its recent price decline makes the company look undervalued on some measures – its market cap of £69mn is just 1.4-times its book value, which is remarkably low for a software company – sluggish revenue growth of just 2.8 per cent during this period doesn't signal a buying opportunity. Undeniably a work in progress. Hold.

Last IC View: Hold, 270p, 20 Oct 2021