Lesico in 2025: Q4 Restored Profit, but Cash Still Needs Proof

Getting To Know The Company

At first glance, Lesico can look like another small listed contractor. That is only partly true. In practice it is an infrastructure execution and maintenance platform with two very different engines: the projects segment, which includes complex infrastructure, civil engineering, and process piping, and the maintenance and concession segment, which includes ongoing service work for water and energy infrastructure, concession-style activity, and road-marking operations in the US. In 2025 the projects segment generated NIS 758.9 million of revenue, maintenance and concessions added NIS 173.7 million, and year-end backlog stood at NIS 1.545 billion.

A superficial read can stop at the headline and say the year was weak. Revenue fell 10.6% to NIS 932.5 million and net profit fell to NIS 11.0 million. But that misses the main point. Below that headline, gross profit actually rose and gross margin improved to 9.0% from 7.4%, while the fourth quarter alone produced NIS 20.8 million of net profit. So 2025 does not read like an operating collapse. It reads like a year in which profitability returned, while cash quality still needs to be proved.

What is working now? Two things. First, execution profitability improved meaningfully, especially in the Israeli projects business and in the US maintenance activity. Second, financial flexibility widened after the April 2025 bond issuance, which lifted cash to NIS 147.9 million and added a NIS 63.8 million trading-securities portfolio. What is still not clean? The active bottleneck is not missing backlog and not tight covenants. The real bottleneck is translating projects, receivables, and reported profitability into clean cash.

That is also why the story matters now. Based on the April 3, 2026 closing price of 429.5 agorot, market value was roughly NIS 219 million. That is close to year-end equity of NIS 237.7 million and far below backlog of NIS 1.545 billion. At the same time, the last trading day volume was only about NIS 120 thousand, and short interest on March 27, 2026 was just 0.01% of float. In other words, this is a small, not very liquid stock without an aggressive short base behind it. In that setup, any evidence that backlog converts into clean cash can change the market reading quickly. So can any disappointment.

This is the short economic map:

Events And Triggers

The Bond Bought Time, But Also Made The Year More Expensive

The main financing event of 2025 was the issuance of Series B bonds with NIS 80 million of par value. Net proceeds after issuance costs were about NIS 78.9 million. That immediately improved the liquidity picture, created a new financing layer, and came with a Baa1.il rating and stable outlook. But it was not free. Net finance expense jumped to NIS 9.6 million from NIS 2.0 million in 2024, mainly because of bond interest, banking fees, FX effects, and fair-value adjustments on the put option.

This is the right way to read the move. On one side, near-term refinancing and bank-pressure risk came down. Bond covenants are very wide: equity of NIS 237.7 million versus a NIS 120 million floor, and a trust-deed equity-to-balance-sheet ratio of 46.72% versus a 22% threshold. On the other side, the bond did not solve the cash-quality question. It simply bought the company more time to prove it.

Ghana Moved From An Accounting Engine To A Conservatism Test

This is the most important issue a first read can miss. In the Ghana water project, completion stood at 61.92% at the end of 2025, and the estimated total project revenue was NIS 330.3 million. On paper that still looks like a large overseas project. In practice, the company materially slowed part of the work, the original lender drawdown period expired, and the company still had no formal update on a new financing arrangement in the original or a revised format.

Management reacted conservatively, and that matters. In the directors' discussion, Lesico explains that part of the revenue decline was also driven by the decision to recognize revenue in the foreign project according to actual cash receipts. At the same time, other income fell 86.7% to NIS 1.4 million, mainly because interest income tied to Ghana payment delays was deferred. Put differently, Lesico gave up part of the current accounting uplift in order not to overstate a picture that is not yet backed by collection.

That still does not make the issue small. Approved invoices in the project amounted to about EUR 15.8 million, roughly NIS 59.2 million, and that amount is not included in receivables and accrued income. The company also stresses that project cash flow is positive and that actual receipts exceed actual project costs to date. So Ghana is not an immediate black hole. But it is not a clean growth engine either. Right now it is a test of collections and accounting discipline.

The Fourth Quarter Looked Strong, But Not All Of It Was Pure Organic Recovery

The fourth quarter changed the tone of the year: revenue of NIS 257.6 million, gross profit of NIS 44.8 million, operating profit of NIS 30.1 million, and net profit of NIS 20.8 million. That is a sharp contrast to the NIS 11.0 million net loss in Q2 and the NIS 3.7 million loss in Q1.

But reading that quarter as fully organic acceleration misses part of the story. During Q4 the company reached agreements with several customers across different projects, including compensation for war-related effects, compensation tied to the completion of other projects, and additional compensation for achieving agreed milestones. That does not make the quarter unreal. It does mean that 2026 will have to show whether this level is repeatable without the same layer of late-year settlements.

Backlog And New Wins Exist, But They Do Not All Carry The Same Level Of Certainty

During 2025 the company reported water projects totaling NIS 102.4 million, a logistics-center project in northern Israel with expected revenue of NIS 160 million, and after the balance-sheet date a substation win in Emek Hefer with expected revenue of NIS 95 million. In addition, the process-piping subsidiary won a continuing-contractor tender in Belgium with expected revenue of EUR 15 million over three years.

This is where fact discipline matters. The report also says the company has indications for another EUR 15 million of work under the existing engagement with the same customer in Belgium. Those are not the same EUR 15 million. The awarded tender is one thing. The indications for additional work are another. Both support the idea of continuing activity in Europe, but only one of them is already anchored in a won tender.

Efficiency, Profitability, And Competition

The 2025 operating story is sharper than the top line suggests. Revenue fell 10.6%, but cost of revenue fell 12.1%. As a result, gross profit rose to NIS 83.7 million from NIS 77.1 million, and gross margin improved to 9.0% from 7.4%. That is not cosmetic. It shows that the economics of the projects delivered and the maintenance business were better.

Projects Revenue Fell, But Projects Margin Improved

The projects segment lost NIS 134.9 million of revenue and fell to NIS 758.9 million. That is a sharp decline, driven both by war effects in Israel and by the slower, more conservative recognition profile in the foreign project. But gross profit in the segment still rose to NIS 64.9 million from NIS 62.2 million, and gross margin jumped to 8.5% from 7.0%.

The meaning is straightforward: in 2025 Lesico executed less volume in projects, but the volume it did recognize was better. Part of that came from the completion of Israeli projects and customer agreements, including effects related to Operation Rising Lion. That improves profitability, but it also argues for caution. Not every basis point of margin improvement in 2025 should be treated as fully recurring in 2026.

Another important point is that the revenue decline does not read like a broad customer collapse. In the 2024 accounts, major customer A contributed NIS 142.0 million in the projects segment. In 2025 there is no similar contribution at that threshold. So part of the decline also reflects the unwind of a large customer or project concentration, not only broad weakness.

Maintenance And Concessions Provided The More Stable Anchor

The maintenance and concessions segment grew 16.6% to NIS 173.7 million, while gross profit rose 26.2% to NIS 18.8 million. Gross margin improved to 10.8% from 10.0%. The report attributes much of that to better results at the US subsidiaries.

That matters because this is the steadier leg of the group. It is built on dozens of active contracts in Israel and several dozen contracts in the US, and the company explicitly says it has no dependence on a single customer or a small cluster of customers in this segment. So when this segment improves, it does not only add profit. It also reduces dependence on the timing of any one projects contract.

Operating Expenses Stayed Almost Flat, So Margin Improvement Showed Up Quickly

Selling, general, and administrative expense increased only 0.6% to NIS 59.0 million, even though some lines rose, including marketing, advertising, professional services, and rent and systems maintenance. That is why operating profit before other income rose 33.8% to NIS 24.6 million. But other income then dropped sharply, so total operating profit slipped slightly to NIS 26.0 million.

This explains the core paradox of the year. In narrow operating terms, 2025 was actually better. In bottom-line terms, part of that improvement was absorbed in two places: deferred Ghana-related interest income, and a much heavier finance burden after the bond issue.

The Operating Model Still Caps The Ceiling

Lesico is not a software company. It is an execution business. According to the report, about 64% of cost of revenue is made up of payments to subcontractors, and in many cases those costs are back-to-back against customer revenue. That helps reduce part of the inflation exposure, but it also means a large share of the business still depends on subcontractor management, guarantees, delivery timing, and working capital. So even when margin improves, the ceiling remains relatively limited, and any project deviation can erase part of the gain quickly.

Cash Flow, Debt, And Capital Structure

This is where the cash framing matters. Under a normalized / maintenance cash view, the business generated NIS 28.4 million of operating cash flow in 2025. That is not bad at all for a year that ended with only NIS 11.0 million of net profit. After NIS 5.8 million of fixed-asset purchases, around NIS 22.6 million is left before additional capital-allocation and financing uses.

But this thesis sits much more on all-in cash flexibility. And there the picture is less comfortable. In the same year the company paid NIS 8.9 million of lease principal, NIS 5.0 million of dividends, and also repaid bank debt on a net basis. At that level, the year’s cash flexibility is close to flat even before bringing in the new securities portfolio and the rest of the investing activity. So the rise in cash to year-end is better read as the product of decent operating cash flow plus bond financing, not as a clean organic cash build.

The main yellow flag is simple. Investing cash flow consumed NIS 52.6 million, mainly because of net purchases of trading securities, fixed-asset spending, and loans and capital-note issuance to investees. In other words, a meaningful part of the fresh liquidity moved from one balance-sheet pocket to another, rather than remaining truly free for execution needs.

That is also why working capital needs to be read carefully. Reported working capital increased to NIS 232.7 million from NIS 153.2 million, but operating working capital actually edged down to NIS 42.7 million from NIS 45.8 million. Receivables fell by NIS 34.3 million, which is positive, but inventory jumped 127% to NIS 20.5 million, mainly in piping materials, and customer advances fell NIS 6.4 million. So working capital looks better mainly because of cash and securities, not because the core business suddenly became much cleaner.

That said, the financing room is real. At year-end the group had NIS 171.6 million of committed cash credit lines and another NIS 523.1 million of uncommitted cash and guarantee facilities, of which about NIS 26.0 million of cash lines and NIS 258.1 million of guarantee lines were in use. This is still the profile of an execution company that needs heavy guarantee plumbing, but not the profile of a group that is being squeezed.

The same goes for covenants. Bond metrics are very wide, and the US subsidiary also met all of its covenants at the end of 2025, including a 2.08 EBITDA-to-debt-service ratio against a 1.25 minimum. So anyone looking for immediate balance-sheet drama will not find it here. The issue is not that the balance sheet is weak. The issue is that it still has to prove that the cash inside it was built by operations, not only by financing.

Outlook And Forward Read

First finding: 2026 begins from a better margin base, not from a higher revenue base. That is a critical distinction. Lesico now has to show that the margin recovery of 2025 holds even as the company goes back to running on backlog, rather than just in a year where part of the volume dropped and late-year agreements helped.

Second finding: Ghana has not disappeared from the thesis, but it has not yet returned as a clean growth engine either. The accounting conservatism there protects report quality, but it also leaves a material amount of approved invoices outside receivables and accrued income. If collections advance, that can improve both revenue and the market reading. If not, it remains an overhang on trust in the cash-conversion story.

Third finding: the bond gave the company one to two years of relative quiet, but that quiet can be wasted if it is channeled mainly into a securities portfolio, new acquisitions, or fresh initiatives before the core business proves that it can convert backlog into clean cash.

Fourth finding: the entry into industrialized construction through Lesico Indan is currently a strategic option, not a profit engine. From the July 1, 2025 acquisition date through year-end, that activity contributed NIS 2.269 million of revenue and a NIS 145 thousand net loss. Against that, the balance sheet already carries NIS 7.343 million of goodwill, a NIS 5.151 million put-option liability, and NIS 4.278 million of contingent consideration. That is not necessarily bad. It simply means another story has already added obligations before proving economics.

Fifth finding: the backlog is large, but timing is still sensitive. In projects, NIS 621.9 million of year-end backlog is slated for 2026 and NIS 470.0 million for 2027 and beyond. In maintenance and concessions, NIS 128.4 million is slated for 2026 and NIS 325.0 million for 2027 and beyond. Part of the maintenance backlog, in particular, is also built on framework agreements, rolling orders, and customer work programs. That helps stability, but it is less hard-edged than a fixed lump-sum project timetable.

That is why 2026 looks like a proof year. For that year to read well, four things need to happen together. First, the new wins, especially in water, logistics, Emek Hefer, and Belgium, need to move from announcement to execution and recognized revenue. Second, Ghana at least needs to avoid deteriorating further, and ideally show collections or a clearer funding route. Third, management has to stay disciplined in capital allocation and not turn the post-bond quiet into an expensive collection of new experiments. Fourth, the profitability improvement of 2025 has to survive without the same layer of late-year compensation.

The good news is that the raw material for improvement exists: more than NIS 1.5 billion of backlog, better margins, wide guarantee capacity, and new wins after the balance-sheet date. The less comfortable news is that the market has seen many contractors where backlog looked stronger than the cash left for shareholders. That is why the key number over the coming year will not only be revenue. It will be what remains after revenue passes through guarantees, subcontractors, inventory, leases, and financing.

Risks

Ghana Remains The Most Unusual Exposure In The Story

The company stresses that project cash flow is positive, that actual receipts exceed actual costs, and that in its view the project should receive priority as a nationally important one. Even so, there is still no formal update on a new funding framework, and approved invoices remain outside receivables and accrued income. This is exactly the kind of risk that does not look like a broken covenant but can weigh on market trust in the numbers for a long time.

The Execution Environment Is Still Tight

The company itself points to security-related effects, labor shortages in the industry, raw-material inflation, and possible supply delays, especially in materials arriving from Asia and the Far East. It also states that most of its activity is tied to the Israeli construction and infrastructure market. So even though 2025 showed a margin improvement, this is not an insulated business. In a contractor model like this one, delays, repricing, or subcontractor scarcity can change actual profitability quickly.

Expansion Moves May Be Arriving Before The Core Has Fully Proved Itself

Lesico talks about expanding abroad, investing in technology, examining entry into residential-building fields, and acquiring synergistic activities. That sounds attractive, and some of it is supported by cash. But 2025 also shows what that looks like in the numbers: Lesico Indan added an interesting option and, in the same move, added goodwill, liabilities, and a put option. If 2026 does not first deliver a clearer proof in the core business, the market may read another strategic option as management load rather than added value.

The Litigation Ring Is Not The Main Threat, But It Is Part Of The Business Model

The report includes a typical contractor set of legal proceedings, including a NIS 13.1 million claim by a subcontractor, a NIS 9.5 million claim against a subsidiary for which a provision was recorded, and a NIS 14.0 million claim filed by a subsidiary against a customer. This is not the thesis by itself. It does serve as a reminder that profitability in this kind of execution business always runs through a noisier contractual and legal environment than in a cleaner industrial model.

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Conclusions

Lesico ends 2025 as a better operating company, but not as a simpler company. Margins improved, maintenance and concessions provided a steadier anchor, and the fourth quarter showed that profit is still there. At the same time, part of the improvement came from late-year settlements, Ghana still requires patience, and the larger cash pile also reflects bond financing rather than only the underlying cash power of the business.

Current thesis: 2025 proved that Lesico can restore profitability, but 2026 now has to prove that this profitability can turn into clean and consistent cash.

What has changed versus the older read is the center of gravity. It used to be easier to look at Lesico through backlog and cash on hand. After 2025, the more useful lens is the gap between backlog, profit, and reported cash, versus what actually remains after leases, dividends, bank debt service, and slower-moving projects.

The strongest counter-thesis is that the market may still be too cautious. Backlog is large, covenants are wide, Ghana remains cash-positive, and the bond issue has already reduced near-term funding pressure. In that reading, 2025 was only a transition year ahead of a higher-volume 2026.

What could change the market interpretation over the near to medium term? Collections or funding clarity in Ghana, the first 2026 reports showing whether Q4 was a one-off or a new base, and real execution progress in the new projects without another working-capital deterioration.

Why does this matter? Because this is a small infrastructure name where the gap between backlog and profit on one side and real cash on the other still determines the quality of the story. In 2025 margins improved. Now the market needs to see whether cash quality improved too.

Over the next 2 to 4 quarters the company needs to convert the high backlog and the new wins into recognized revenue, show that operating cash flow stays solid even without unusual late-2025 compensation, make visible progress in collecting the approved Ghana invoices, and stay disciplined in capital allocation after the bond. What would weaken the thesis is a combination of cash erosion, a stuck Ghana process, and proof that the fourth quarter was mainly a year-end settlement event.