A positive FY’22e pre-close update from ESYS, highlighting in-line revenues (SCMe forecast revs: £23.5m (+6% y/y)), and cash ahead at year-end (£24m; SCMe: £22.1m). The Group has successfully renewed with it largest customers in the US and UK whose expansion plans, alongside new logos wins in the year, have led to contracted pipeline worth an estimated £1.6m ARR at year-end. Investment plans remain on track, with new operational footprints established and sites going live in Europe and APAC. We note ESYS management are adopting a ’capital-light’ model on entry into new markets which will have the effect of reducing near-term capex requirements for expansion until critical mass is achieved – we leave mid-term FCF unchanged for now, however this puts upside pressure on net cash forecasts for FY’24e. A combination of a strong contracted pipeline number (c.1/3rd forecast FY’23e ARR uplift contracted at July outturn), an enlarged customer logo base, sales and marketing investment and recovering CRE occupancy rates provide comfort for FY’23e revenue forecasts, and we leave numbers unchanged. 1.2x EV/ARR represents a compelling entry-point in our view - an adjusted 12-month price target of 205p/share (was 300p) reflects peer group multiple compression with peers now trading 3x-5x EV/sales (SCMe target: 4x).
