Supergas Power: How Much Cushion Is Really Left In LPG

The main article's core claim was simple: electricity is the growth engine, but LPG is still paying for the transition. This follow-up isolates one narrower question: how much true headroom is left above the LPG segment's carrying value after a year in which revenue held up but profitability did not.

The short answer: there is no impairment in the LPG segment, but there is also no wide buffer. The cash-generating unit was valued at NIS 888.1 million versus a carrying amount of NIS 829 million. That leaves only about NIS 59.1 million of headroom. It clears the accounting test, but it is not enough to feel comfortable against even a modest deterioration in assumptions.

What still supports the broader thesis is that LPG remains the group's main profit engine. In 2025 the segment generated NIS 119.1 million of gross profit and NIS 17.1 million of segment operating profit, while the electricity segment produced NIS 380.3 million of revenue but still posted a gross loss of NIS 0.6 million and a segment operating loss of NIS 16.6 million. So this is not a technical footnote. If the LPG goodwill cushion keeps tightening, the business that is financing the transition remains more fragile than a quick read suggests.

Not Against NIS 243 Million, But Against NIS 829 Million

The easy mistake is to focus only on the NIS 243 million of goodwill allocated to LPG. That matters, but it is not the test. The impairment test is applied against the entire cash-generating unit: NIS 586 million of net operating assets plus NIS 243 million of goodwill, for a total carrying value of NIS 829 million. The real question is therefore not goodwill against goodwill, but use value of NIS 888.1 million against a full carrying base of NIS 829 million.

This is the difference between a clean accounting answer and a useful analytical one. It is fair to say there was no write-down. It is not fair to say the segment sits on a comfortable cushion. Headroom of roughly NIS 59 million is only about 7% above the unit's carrying amount. That is not much room for another year of compressed margins.

The more interesting nuance is that the valuation was not built on a risk-free discount rate. It uses a 6.75% post-tax discount rate, 2% terminal growth beyond the first five forecast years, and an additional 0.5% company-specific risk premium because of raw-material uncertainty and the fact that 2025 missed its profitability budget. In other words, the model already gives some negative weight to the abnormal conditions of 2025. Even after that, the headroom survives, but it survives narrowly.

Where 2025 Broke The Prior Model

The most important part of the impairment memo is not the simple fact that no write-down was booked. It is the explanation for why 2025 did not repeat the prior plan. The memo states explicitly that the company missed the profitability assumptions that underpinned the 31 December 2024 impairment test even though it met, and slightly exceeded, the revenue plan. That matters because it shifts the problem away from volume and into margin quality.

The segment numbers make that visible. LPG revenue rose to NIS 427.4 million in 2025 from NIS 417.5 million in 2024. Gross profit fell to NIS 119.1 million from NIS 131.2 million, and segment operating profit fell to NIS 17.1 million from NIS 18.0 million. Revenue held, but each shekel of sales produced less profit. Gross margin dropped from about 31.4% to 27.9%.

The explanation is consistent across the filing set: LPG input costs rose because the company had to rely more heavily on imports after the shutdown of Bazan following a missile strike and the separate shutdown of Baz"a for about a month. The company kept serving demand through imports, but the cost of doing so hurt profitability. That matters because 2025 shows the segment can protect service levels and revenue under supply disruption, but not necessarily margin.

That is why LPG is still financing the transition, but no longer with much comfort. Out of group gross profit of NIS 148.4 million, LPG contributed about NIS 119.1 million, roughly 80% of the total. Electricity remained gross-loss making. So the goodwill question is really a question about how stable the group's current profit engine still is while the electricity segment keeps growing but remains loss-making.

What The Valuation Already Needs To Be True

If 2025 was a disruption year, the next step is to ask what exactly now has to happen for the no-impairment conclusion to remain credible. This is where reading forward matters. The 2026 forecast assumes 5.5% segment revenue growth to NIS 450.9 million. Growth then moderates gradually toward a 2% terminal rate. At the same time, gross margin rises from 28.2% in 2026 to 35.0% in the terminal view, while selling expenses as a share of revenue decline from 19.4% to 16.6%.

So the valuation model is not merely assuming that the 2025 disruption disappears. It also assumes renewed customer growth across most supply formats, some real price increases, and a better cost structure over time. That is more than a simple normalization story. It is a multi-year operational improvement story.

There is some restraint in that setup. The model does not assume a dramatic snap-back in 2026. On its own terms, 2026 is more of a first stabilization year than a breakout year: the 28.2% gross margin still sits well below the long-term 35.0% target. But that is exactly why 2026 becomes the proof point. If even the first stabilization year does not materialize, it becomes much harder to defend everything stacked above it.

Import Dependence Is Not Just A One-Off Event, It Is A Margin Stress Test

What makes 2025 so useful analytically is that it already delivered a real-world stress test. The segment showed it can continue serving customers even when local supply is disrupted. That is the positive read. But the same test also exposed the weak point: when reliance on imports rises, margin erodes faster than revenue.

The implication is that the cushion is not sensitive only to another extreme event like 2025. It is also sensitive to a much smaller question: does the local supply environment normalize enough to let the company rebuild a reasonable gross margin, or do the next few years include structurally more imports, higher associated costs, and only partial pass-through to customers. The impairment test does not need demand to collapse in order to come under pressure. It only needs profitability to settle somewhat below the path embedded in the model.

The sensitivity table makes the point clearly. In the base case, a 6.75% discount rate and 2% terminal growth produce NIS 888.1 million. At the same discount rate, cutting growth to 1.5% drops value to NIS 814.5 million, below carrying value. Alternatively, holding growth at 2% but raising the discount rate to 7.25% drops value to NIS 802.0 million. The headroom disappears under fairly mild changes, not only under tail-risk scenarios.

What Must Normalize For The Cushion To Stay Comfortable

First: supply cost has to normalize enough for revenue growth to convert back into gross profit, not merely preserve volume.

Second: the recovery cannot rely on demand alone. The model also assumes a gradual decline in selling and overhead ratios. If revenue grows but the cost structure stays heavy, the valuation becomes materially more sensitive.

Third: 2026 has to prove that 2025 was a temporary operating deviation rather than a new earnings base. The valuer even notes that if the company meets its 2026 budget, the extra 0.5% specific premium should not need to be reapplied in the next test. That is the strongest counter-thesis here: if the disruption was truly one-off, the cushion could widen. Until that is demonstrated, however, the current headroom remains too dependent on execution.

Bottom Line

This continuation does not turn the no-impairment conclusion into a mistake. It just puts it in the right proportion. From an accounting standpoint, the segment passed the test. From an analytical standpoint, it passed with enough headroom to avoid a write-down, but not enough to ignore the 2025 miss.

The current thesis: LPG still carries the group's profitability, but its impairment cushion now rests on the assumption that 2025 was an abnormal disruption year and that 2026 marks a return to path.

What changes relative to the broader read in the main article is the precision of that statement. It is not enough to say LPG funds the electricity transition. It also matters that this funding engine is still working while sitting on a goodwill cushion that is not wide. The critical checkpoint is therefore not only how fast electricity grows, but whether LPG can recover margin without relying on an overly generous normalization assumption.