Shmuel Baruch 2025: The project pipeline is growing faster than the cash

Company Overview

Shmuel Baruch no longer looks like a small family contractor with a handful of isolated projects. During 2025 it became a broader residential development platform, with equity at ILS 84.8 million, an outside strategic partner, a public bond series, and a wider spread of projects ranging from discounted-housing schemes in the north to new deals in Kiryat Ata, Kadima Tzoran and urban renewal.

What is working right now is easy to see. Revenue rose to ILS 335.2 million, gross profit to ILS 56.2 million, and net profit to ILS 23.3 million. The problem is that a superficial read stops there. The active bottleneck is still cash conversion. Contract assets jumped to ILS 159.6 million, contract liabilities fell to ILS 24.9 million, operating cash flow turned to negative ILS 84.0 million, and year-end cash was only ILS 1.95 million.

That is not an accounting footnote. It means a large part of the value created in 2025 is still sitting inside work already performed, units not yet fully delivered, and cash not yet released through the structure. That matters now because 2026 looks like a proof year. The company has a meaningful execution stack that can generate deliveries and collections, but it is also already loading the next wave of projects. The real question is not whether there is a pipeline. There is. The question is whether the pipeline will turn into cash faster than the next growth layer consumes equity and funding.

There is also an actionability constraint worth stating up front. This is not a typical listed equity developer. The public market only meets the company through its bond. That means the near-term market read is less about upside-to-NAV stories and more about debt service, collateral release, and how much real liquidity can move upstream from the projects.

Four things worth understanding upfront

• Profit improved, cash did not. Net profit nearly doubled to ILS 23.3 million, but the net contract position moved from negative ILS 3.5 million to positive ILS 134.6 million, and that swing fed directly into negative operating cash flow.
• Equity is stronger, but still not free. Equity rose to ILS 84.8 million thanks to earnings and the Nashon investment, yet the equity-to-balance-sheet ratio was still 16.7%, below the 17% level required for dividend distributions.
• The company moved from harvesting into spreading. Non-current land inventory rose to ILS 69.8 million from ILS 2.3 million, and equity-method investments and loans rose to ILS 63.3 million from ILS 33.3 million.
• Not every project surplus becomes free corporate cash. Bondholders hold security over the surpluses of Acre Kedma South, Acre Kedma North and Elad Rehavia, so the path from project profit to free cash at the listed-company layer is not direct.

Economic Map at a Glance

Events and Triggers

The key point here is that 2025 was not only a growth year. It was also a year in which the company changed its ownership structure, funding architecture and project mix.

Nashon brought capital, but also pushed the company into a heavier phase

The biggest move was Nashon’s entry. At the company level, ILS 20 million came in as equity. Separately, the controlling shareholders sold shares to Nashon for ILS 11.6 million. After completion, Nashon held 33.33% of the company, with an option to rise to 50% between January 2026 and January 2028 based on a company valuation of ILS 135 million.

The more important part is not the initial injection. Nashon also received the right to act as financial partner in up to four future projects, funding 70% of the required equity while the company funds 30%, with the project rights then held equally. That improves Shmuel Baruch’s ability to enter larger projects. It also means that more of the future value creation may sit inside joint structures rather than as clean, fully accessible value at the parent-company level.

The bond expansion bought time, not a new model

In July 2025 the company expanded its bond series by another ILS 10 million nominal, on the same terms as the original series, with a fixed 7.4% coupon. That helped fund existing projects and support the operating platform. But it is important to remember what the bond actually does. It sits as a current liability, begins amortizing principal on June 30, 2026, and is backed by project-level collateral. It provides oxygen, but it also takes a larger claim on future project cash.

The portfolio is not only being monetized, it is being pushed outward

On the positive side, the company sold its remaining stake in the Akoya project for ILS 18 million, with expected profit of roughly ILS 1.8 million, and also sold its stake in Alpha Hi-Tech. Those exits show management can monetize non-core assets and recycle capital.

But the broader move goes the other way. The company completed the purchase of 50% of Kiryat Ata, assumed ILS 53 million of the project debt, and won Kadima Tzoran. Through the joint company with Nashon it also entered the 590-unit Acre Ramat HaYam project, while one of the held companies later won a 403-unit project in Maale Adumim. This is already a wider development story, not just a story of harvesting a few legacy projects.

2026 will stand or fall on four projects

The near-term proof stack is very clear. Kedma South was completed in September 2025, and by the approval date of the annual report 123 units had already been delivered. Kedma North was 89% complete and fully sold. Elad Rehavia was 43.4% complete and fully sold. Migdal HaEmek was 31.7% complete, with 97 units sold. These are the projects that have to turn 2025 accounting progress into 2026 deliveries, collections and surplus release.

Efficiency, Profitability, and Competition

The real takeaway here is less flattering than the headline. 2025 was a year of volume growth and platform build-out, not a clean year of margin expansion.

Revenue rose 82.9% to ILS 335.2 million. Gross profit rose 73.1% to ILS 56.2 million. Net profit rose 94.8% to ILS 23.3 million. Those are strong numbers. But underneath them, the improvement came mainly from higher activity, project progress and new revenue recognition, not from a dramatic widening in margins.

Gross profit increased sharply in absolute terms, but the gross margin did not open up versus 2024. Revenue was helped by progress at Kedma North and South, Elad Rehavia and Migdal HaEmek, along with land-rights sales. That matters because it means the earnings step-up is driven mainly by a larger number of projects entering recognition, rather than a new level of pricing power.

The cost base has already been built for the next stage

G&A rose to ILS 11.4 million from ILS 5.0 million. Salary and related expenses alone rose to ILS 7.4 million from ILS 2.9 million, while headcount climbed to 38 from 24. That does not read like a failure. It reads like a company building a larger platform. The open question is whether 2026 and 2027 volume will be enough to absorb this structure without creating a new drag on operating margin.

Put differently, Shmuel Baruch no longer looks like a lean developer with a light HQ layer. It looks like a company that is adding management, execution and finance capacity so it can run more projects at once. If volume keeps scaling, that can work. If deliveries and collections slip, the bigger fixed base quickly turns from support into pressure.

Who is paying for the reported strength

Even the positive side of profit needs to be separated properly. In 2025 the company recorded ILS 2.64 million of income from the significant financing component embedded in contracts with buyers, versus an expense of ILS 0.3 million in 2024. That is real, but it is not the same as better construction economics or stronger pricing power.

At the same time, the execution environment was not benign. The company itself describes labor shortages, higher execution costs and a 5.1% rise in the residential construction-input index in 2025. There is an important nuance here: management says its execution contracts are generally not indexed to the construction-input index, while apartment sale contracts are linked to the index within legal limits. That can help margins as long as timelines hold. Once schedules slip, labor shortages and financing costs can eat that advantage quickly.

Competition did not disappear, it just changed form

The company still operates in a market where competition exists for land, for urban-renewal signatures and for labor. Its edge right now seems to be a combination of planning know-how, local relationships, execution capability and an ability to accompany a project from early development through delivery. That is meaningful. It still does not detach the company from the broader cycle of labor pressure, regulation, bidding intensity and expensive capital.

Cash Flow, Debt, and Capital Structure

This is where the 2025 story really sits. I am using an all-in cash flexibility lens here, not a normalized cash generation lens, because in a leveraged residential developer the central question is how much cash is left after the actual uses of cash, not how much accounting profit the business recognized.

On that basis, 2025 was tight. Operating cash flow was negative ILS 84.0 million. Investing cash flow was negative ILS 26.4 million. Financing cash flow was positive ILS 111.7 million. Year-end cash was only ILS 1.95 million. In other words, external funding did the heavy lifting.

The main bridge between profit and cash was the movement in contract assets and liabilities. The company recognized ILS 315.4 million of revenue during the year, received ILS 177.2 million of advances, and ended the year with ILS 159.6 million of contract assets against ILS 24.9 million of contract liabilities. The positive net position of ILS 134.6 million says something very simple: the company recognized a large amount of project progress before it collected the matching cash.

Debt grew, and it is not cheap

Gross financial debt at year-end was already roughly ILS 339 million, against only ILS 1.95 million of cash. That stack includes short and long bank debt, non-bank financial debt and the public bond. The weighted rates tell the story clearly: short bank debt carried about 7.5%, the bond carried 7.4%, and short-term financial-institution funding was already at 13.4%.

That matters because it tells you who is funding the gap between land acquisition, execution progress and final delivery. As long as deliveries keep moving, the structure can work. If execution slips, the cost of money stops being a financing footnote and becomes part of the operating story.

The company does have a general credit line not tied to a specific project, totaling ILS 41.3 million, of which ILS 22.3 million was utilized at year-end, at Prime plus 3%. That is a useful buffer. It is not a large enough buffer to make the cash question irrelevant.

The covenants look comfortable, but the value is still not accessible

On the surface, the company does not look close to a covenant event. Equity was around ILS 85 million versus a floor of ILS 26 million. The equity-to-balance-sheet ratio was 16.7% versus a 6.8% floor. Management also says it remains within the bond’s debt-to-collateral covenant.

But one of the sharpest insights in the file sits elsewhere. The acceleration covenants are not the same as the distribution restrictions. For dividend payments, the company needs at least a 17% equity-to-balance-sheet ratio. It finished the year at 16.7%. So even after a strong earnings year, an equity injection and a new strategic partner, the value is still not fully free at the shareholder layer. It is still busy supporting the balance sheet.

Even when projects generate surplus, not all of it stays free

Bondholders benefit from collateral over the surpluses of Acre Kedma South, Acre Kedma North and Elad Rehavia, together with the related pledged accounts. That is easy to miss. A project can be profitable and still not convert one-for-one into free corporate cash. First there is the project lender, then the collateral structure, and only after that does truly free value emerge at the company level.

That is exactly why the most important metric for 2026 is not just net profit. It is how much of today’s contract assets and secured project surpluses actually turn into cash that reaches the corporate layer.

Outlook

2026 looks like a bridge year with a cash-conversion proof test. It is not a reset year, because the company now has earnings, equity and a wider project platform. It is also not a clean breakout year, because equity and cash are still working too hard for the thesis to feel fully de-risked.

What has to be carried into 2026

• There is real revenue visibility. The company discloses ILS 182.4 million of signed apartment revenue expected to be recognized in 2026 and another ILS 101.7 million in 2027, for projects that already have permits.
• The execution focus is very clear. Kedma South has already moved into deliveries, Kedma North is near completion and fully sold, Elad Rehavia is fully sold but only mid-way in execution, and Migdal HaEmek still has to prove pace on both construction and sales conversion.
• The new project pipe already starts far out. Kiryat Ata is expected to begin construction in January 2028, Kadima Tzoran in July 2028, and Acre Ramat HaYam and the urban-renewal projects even later.
• The new partner solves part of the equity bottleneck, not all of it. The 70/30 model with Nashon reduces some funding pressure, but it does not replace the need to release real cash from projects already under execution.

What could improve the read

The main positive trigger is not another land win. It is a shorter distance between profit and cash. If 2026 shows a decline in the net positive contract-asset balance, solid delivery pace at Kedma, continued progress in Elad Rehavia without margin slippage, and visible cash release from projects, the market read can improve quickly. Then 2025 earnings would no longer look early. They would start to look like the first stage of a real cash cycle.

The rate backdrop is also somewhat less hostile. The company notes that after the balance-sheet date the Bank of Israel rate moved down to 4.0%, versus 4.25% during 2025. That is helpful, but it is not a solution. The company still has roughly ILS 260 million of Prime-based debt, and a 1% increase in rates would add about ILS 2.6 million to annual financing costs for a similar debt load.

What still blocks a clean read

The issue is that the company did not pause to harvest. After year-end it already took a new ILS 63 million loan to finance Kadima Tzoran, and one of the held companies took a ILS 136 million acquisition loan for Maale Adumim, of which the company’s share is ILS 68 million. So even after ending 2025 with very thin cash and negative operating cash flow, management is still widening the future project base.

That is not automatically a wrong move. It does mean the coming year is as much about discipline as it is about growth. If the company can do both at once, finish and deliver, and also enter new projects without losing control of the capital base, it can become a successful bridge year. If it keeps loading future projects before the current stack releases cash, the story remains stretched.

Risks

The first and most important risk is earnings quality from a cash perspective. A residential developer can live for a period with profit ahead of cash. It cannot build a permanent structure on that gap. If 2026 does not close part of it, 2025 will look less like a year of durable value creation and more like a year in which the real cash test was deferred.

The second risk is the pace of expansion. Kiryat Ata, Kadima Tzoran, Acre Ramat HaYam, Maale Adumim and Kiryat Gat widen the horizon, but they also require more funding, more management attention and more patience. The problem is not that these projects exist. The problem is their timing relative to the need to release equity from the projects already under execution.

The third risk is the combination of labor, execution cost and rates. Management describes continued labor shortages, higher execution costs and rate exposure. When short-term funding from financial institutions carries a weighted rate of 13.4%, there is not much room for delays.

The fourth risk is value accessibility. Even if projects perform, a larger part of the value may continue to sit inside joint ventures, pledged accounts and bond collateral packages. The right question is not only how much profit is created. It is how much of that value can actually move to the listed-company layer, and when.

Conclusions

Shmuel Baruch exits 2025 as a stronger company than it was a year earlier. Equity is stronger, the operating platform is larger, key projects have advanced, and the company now has a partner that makes larger ambitions possible. But this is still not a clean thesis. The active bottleneck remains the same bottleneck: cash. Until earnings, project surpluses and held-company value are converted into liquid cash at the corporate layer, the market will keep reading the story through funding flexibility rather than through pure growth.

Current thesis: Shmuel Baruch proved in 2025 that it can scale earnings and equity, but it still has not proved that the new structure can generate free corporate cash at a pace that fits the heavier funding base.

What changed: The company no longer relies only on a few individual projects and family capital. It is now a broader platform with a strategic partner, public bond funding and a deeper project pipeline. At the same time, the gap between earnings and cash became larger, not smaller.

The strongest counter-thesis: The strict cash reading may be too early. Several key projects are fully or almost fully sold, more than ILS 280 million of signed apartment revenue is expected across 2026 and 2027, and rates have begun to ease. If deliveries move as planned, a large part of the 2025 cash strain may prove to be timing rather than structure.

What could change the market read in the short to medium term: Delivery pace and collections at the Kedma projects, Elad Rehavia and Migdal HaEmek, together with the way the next layer of projects is funded, will determine whether the market sees a platform stepping up or a company moving too fast before cash arrives.

Why this matters: This is exactly what separates a developer that can scale safely from one that reports accounting growth while financial flexibility remains narrow.

What must happen over the next 2-4 quarters: The company needs to convert part of the contract-asset build into cash, complete deliveries at Kedma South and North, maintain solid progress at Elad and Migdal HaEmek, and show that the new projects are not consuming the entire capital cushion before the active execution stack releases surplus.