Shoval Engineering: Sales Quality, Financing Campaigns, and What They Are Doing to Working Capital
In 2025, Shoval posted growth and positive working capital, but sales quality became more dependent on deferred collections, contractor loans, and revenue recognition that runs ahead of cash. This is not necessarily a demand problem, but it is clearly a question of who is funding growth until delivery.
Where Sales Quality Meets Working Capital
The main article argued that Shoval's 2025 story looked stronger on the balance sheet than in cash flow. This continuation isolates the exact junction where that happens. Sales are still happening, revenue is still being recognized, and equity is stronger, but a larger share of the cash now arrives later, and part of that delay already carries a visible financing cost.
Three findings need to be read together from the start. The first finding: the NIS 257.0 million customers-and-accrued-revenue line at year-end 2025 is almost entirely revenue receivable from homebuyers, NIS 245.1 million, not ordinary trade receivables. The second finding: about 30% of free-market apartment sales in 2025 were completed under marketing models built around favorable payment terms or contractor loans. The third finding: working capital turned into a surplus of about NIS 236 million, but operating cash flow fell to negative NIS 110.2 million in the same year, while the company raised roughly NIS 303 million in equity and bonds.
This is not automatically a near-term credit event. On contractor loans, the company says buyer default exposure is not expected to be material, largely because the financing bank examines repayment ability and the company has usually already received a meaningful part of the purchase price. But it is clearly a case where sales quality has changed: less cash arrives early from the buyer, more cash arrives later, and the balance sheet has to bridge the difference.
Two Financing Models, Two Different Sales Qualities
What matters most is that not every financing campaign carries the same risk profile. Under favorable payment terms, the buyer pays only 15% to 20% of the purchase price near signing, gets indexation relief, and pays the balance close to delivery. Under contractor loans, the buyer pays 7% to 20% near signing, receives an average contractor loan of about NIS 1.3 million, and the company absorbs the interest until delivery.
| Model | Initial payment | Who checks repayment ability | Economic cost | What remains open |
|---|---|---|---|---|
| Favorable payment terms | 15% to 20% near signing | No underwriting by the company | Indexation waiver and deferred collection | The company says it cannot estimate the likelihood or size of the exposure if it materializes |
| Contractor loans | 7% to 20% near signing, plus an average contractor loan of about NIS 1.3 million | The lending bank | The company pays interest until delivery | The company says the exposure is not expected to be material |
That chart is the core of the issue. Out of about NIS 64 million of revenue recognized in 2025 under the free-market marketing models, roughly NIS 46 million came from favorable payment terms and NIS 18 million from contractor loans. Of the first bucket, about NIS 14 million is only expected at the end of 2026 and in 2027. Of the second, about NIS 7 million is pushed into the same window. In other words, even when the sale is booked, a meaningful share of the cash does not arrive with it.
The economic cost is already visible in the financials. In 2025 the company paid about NIS 0.7 million of cash interest to mortgage banks because of the contractor-loan campaigns. In deals with favorable payment terms, it calculated a significant financing component of about NIS 3 million, treated as a reduction in the transaction price for revenue recognition, with about NIS 1.4 million affecting revenue recognized in 2025 under the percentage-of-completion method. The concession does not just delay cash. It is already eating into the edge of reported revenue.
This is also where the distinction between the two models matters most. Contractor loans look more aggressive in a headline, but at least a bank is underwriting the buyer. Favorable payment terms are the murkier layer, because the company does no underwriting there and at the same time says it cannot size the exposure if things go wrong. That matters even more after the company itself wrote that the Bank of Israel decision dated March 23, 2025 could affect the ability to keep selling on those terms, even if it still expects the models to continue in the near term.
The Balance Sheet Shows Who Is Funding Growth for Now
At the balance-sheet level, sales quality immediately turns into a working-capital issue. Customers and accrued revenue jumped to NIS 257.0 million from NIS 103.8 million. Of that amount, NIS 245.1 million is revenue receivable from homebuyers, which means revenue recognized by construction progress less collections received. That does not read like ordinary customer debt waiting for an invoice. It reads like profit that moved ahead of cash.
On the other side, buyer advances fell to NIS 39.3 million from NIS 119.3 million. Buildings under construction rose to NIS 465.8 million from NIS 392.2 million. At the same time, cash and deposits in project-finance accounts fell to NIS 15.5 million from NIS 76.6 million, and the restricted bond cash almost disappeared, NIS 0.2 million versus NIS 5.4 million at the end of 2024. That means less funding is arriving upfront from the buyer, and fewer restricted cushions are sitting inside the system.
| Balance-sheet line explaining the gap | 2024 | 2025 | What actually changed |
|---|---|---|---|
| Customers and accrued revenue | 103.8 | 257.0 | Revenue recognition moved much further ahead of collection |
| Of which, revenue receivable from homebuyers | 96.1 | 245.1 | Most of the line is recognized revenue that has still not been collected |
| Buyer advances | 119.3 | 39.3 | Less funding is arriving upfront from the buyer |
| Buildings under construction | 392.2 | 465.8 | More capital remains inside projects |
| Restricted cash and deposits | 82.0 | 15.7 | Fewer dedicated cushions remain in the system |
| Operating cash flow | 151.7 | -110.2 | Growth is no longer translating into operating cash |
That chart makes clear why positive working capital by itself does not solve the issue. At the end of 2025, Shoval has more equity, more time, and a more comfortable balance-sheet starting point. Equity rose to NIS 409.1 million, short-term liabilities fell to NIS 577.9 million, and the company says there are no warning signs. But at the same time, operating cash flow burned deeply negative. The improvement in capital structure depended on equity and bond funding, not only on projects converting cleanly into cash.
That is the difference between self-funded growth and growth that still needs a bridge. Shoval does not look like a company with no funding sources. Quite the opposite. It expanded them materially. But as of year-end 2025, those funding sources are still doing a lot of work to support the current pace of sales and revenue recognition.
Even the Presentation Says the Big Profit Pool Is Still Far From Delivery
The investor presentation shows that this is not a technical accounting point. On one side it presents a very large housing inventory base, 47 projects and 6,606 units in the company's share for marketing, with expected revenue of about NIS 14 billion and expected gross profit of about NIS 2.579 billion. On the other side it shows that only 8 projects and 676 units are under construction, while 13 projects and 1,745 units are still in planning and land reserve, and another 26 projects and 4,185 units are in urban renewal.
| Status | Projects | Units | Expected revenue, NIS billions | Expected gross profit, NIS millions |
|---|---|---|---|---|
| Under construction | 8 | 676 | 1.2 | 219 |
| Planning and land reserve | 13 | 1,745 | 3.8 | 744 |
| Urban renewal | 26 | 4,185 | 9.0 | 1,616 |
| Total | 47 | 6,606 | 14.0 | 2,579 |
That table explains why the balance sheet can look stronger than cash flow. A large part of Shoval's future value still sits in relatively early stages, or at least in stages that require more time before surplus becomes free cash.
Even on the company's own assumptions, surplus release is spread over several years. That does not contradict the fact that the backlog and housing inventory are large. It simply means the path from backlog and signed sales to cash remains longer than the headline growth in profit and balance-sheet strength suggests.
The Bottom Line
Shoval's next test is not a simple demand test. Apartments are being sold, revenue is being recognized, and the company has materially reinforced its capital base. The real test is different: can this growth come back to cash without another layer of external funding and without another round of deferred collection?
That starts with three concrete checkpoints. First, customers and accrued revenue need to stop outrunning buyer advances. Second, free-market sales need to show that they are not becoming increasingly dependent on favorable payment terms, especially in the model where the company does no underwriting and cannot quantify the exposure. Third, the project surpluses shown in the presentation need to start appearing as operating cash flow, not only as a future track on paper.
If that happens, 2025 will look like a natural bridge year for a developer moving deeper into execution. If it does not, the sharper reading of the filing will remain the right one: growth is real, but a large part of it is still being financed by time, by the banks, and by Shoval's own balance sheet.
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