Elco 2025: The Discount Looks Cheap, but the Cash Still Gets Stuck on the Way Up

Getting to Know the Company

At first glance, Elco looks like a classic cheap holdco story: market value of about ILS 3.565 billion against NAV of about ILS 5.792 billion, a stable ilAA- rating, market LTV of about 13%, and a portfolio built around four listed subsidiaries, plus holdings in DIC, The George hotel and several smaller assets. Stop there and the screen shows discount, diversification and conservative leverage. That is only half the story.

The real bottleneck is not whether Elco owns valuable assets. It is how quickly, and how cleanly, that value can move from the subsidiaries up to the parent. In 2025 consolidated revenue rose to ILS 22.661 billion and consolidated net profit returned to ILS 108 million. But only ILS 19 million was attributable to Elco shareholders, while ILS 89 million went to non-controlling interests. At the same time, solo cash ended the year at just ILS 18 million, against solo net debt of ILS 977 million and current liabilities of ILS 337 million.

What is working now? Electra is still growing and ended the year with a huge backlog, Electra Consumer finally became a clearer positive contributor, Electra Real Estate moved from freeze mode into realizations, fundraising and distributions, and Elco’s rating was reaffirmed after year-end. Why is the story still not clean? Because Electra’s Israeli project margins were squeezed, FX still hurt Electra Real Estate, and The George forced Elco to pay up for full ownership and then book an impairment before the asset was stabilized by a post-balance-sheet lease and management agreement.

So this is not a simple discount story. It is a holdco story where created value and accessible value are not the same thing. 2025 improved the base, but 2026 still has to prove that the improvement will not remain trapped at the consolidated level.

The economic map looks like this:

That gap between consolidated growth and parent-level earnings is not a technical footnote. It is the heart of the Elco read.

The roughly 38% discount is not necessarily pure market mispricing. Part of it is an access discount, a parent-layer discount, and a time discount.

Events and Triggers

The first trigger: Elco moved to full ownership of The George real estate. In June 2025, Elco Alpha, which had held 30% of the rights, bought the remaining 70% in the real estate and related equipment for ILS 226 million plus VAT, with roughly ILS 109 million funded by taking over the sellers’ share of the bank debt. This is a classic two-sided move. On one hand, it concentrates all the upside at Elco. On the other hand, it raises direct exposure to an asset whose performance was weak enough to force an impairment.

The second trigger: the hotel still was not stabilized inside the 2025 numbers. Elco booked a ILS 54 million impairment on The George, and the recoverable amount valuation stood at about ILS 383 million as of December 31, 2025. Only after the balance sheet date did Elco sign a 5-year lease and management agreement with a company owned by Israel Canada Hotels, with a 5-year extension option, based on the higher of fixed rent or a percentage of hotel turnover. In other words, 2025 absorbed the pain, and 2026 is supposed to start delivering operating visibility.

The third trigger: at the parent level, the market received two supportive signals. First, the ilAA- rating was reaffirmed with a stable outlook in March 2026. Second, the board approved a ILS 50 million dividend. In addition, Elco’s share in dividends declared by Electra and Electra Consumer during 2025 amounted to ILS 80 million, and another ILS 30 million of Elco’s share was declared in March 2026. That helps the parent-layer narrative, but does not fully solve it.

The fourth trigger: Electra provides both opportunity and friction. Backlog reached ILS 39.332 billion, of which ILS 12.215 billion is scheduled for 2026 and another ILS 27.117 billion after that. During the year Electra bought P.J Mechanical in the US for ILS 102 million, sold its concession stake in the Netanya government campus project and booked a ILS 16 million gain, and signed a transaction to bring Tash’i as an investor into Electra Afikim and Electra Motors for total consideration of ILS 163 million, with an expected gain of ILS 40-50 million on the first stage. The problem is that the leg with the most revenue visibility is also the one still dealing with Israeli margin pressure.

The fifth trigger: Electra Real Estate is moving, but the ground is not fully stable. Fund V for US multifamily completed a first close in January 2026 with commitments of about USD 400 million, and commitments already stood at about USD 420 million by the report date. At the same time, the presentation says that 16 multifamily exits totaling about USD 1.1 billion were completed from the start of 2025 through the publication date. In 2025 Electra Real Estate received about USD 29.7 million in dividends and promote from associates. That is meaningfully better than 2024, but it still does not mean the cash is fully free and frictionless.

The sixth trigger: Electra Real Estate’s debt funds remind investors that monetization comes with execution risk. By the report date, the two debt funds had taken over management of 24 transactions, and ownership had already moved to the funds in 10 cases in Fund I and 8 cases in Fund II. Expected credit loss provisions at the debt funds rose to USD 8.3 million on a 100% basis.

The seventh trigger: Electra Consumer has finally become a second real earnings leg for Elco. By the time the accounts were approved, the conversion of 151 Global Retail stores to Carrefour had been completed, Electra Consumer had already paid ILS 80 million in dividends during 2025 and announced another ILS 40 million after year-end, and the presentation already points to a 2027 target of ILS 8.8-9.2 billion in revenue and ILS 550-600 million in EBITDA. This is no longer just a damage-control story.

Efficiency, Profitability, and Competition

Elco’s 2025 operating story is clearly better, but not yet clean. Revenue rose 11.4% to ILS 22.661 billion, operating profit jumped to ILS 661 million from ILS 362 million, and profit from continuing operations moved to ILS 148 million from a ILS 106 million loss. On the other hand, the fourth quarter still ended with a ILS 51 million net loss and a ILS 59 million loss attributable to Elco shareholders. The improvement is real, but it is not yet linear.

Electra: plenty of volume, less quality of profit

Electra ended 2025 with revenue of ILS 13.958 billion, up about 13%, but segment profit fell to ILS 349 million from ILS 443 million. That matters. The market tends to react quickly to a ILS 39.3 billion backlog, but in 2025 the issue was not a shortage of work. It was the quality of the profit on that work.

The war mainly hit Israeli infrastructure and residential development through labor shortages, higher construction input costs and longer project timelines. Electra says it is negotiating with project owners to reduce losses and secure compensation, but there is still no certainty. That is the point investors can miss: backlog is not cash, and it is not automatically margin. In Electra’s case, part of the huge order book still sits in an execution environment that has not normalized.

The positive side is that the weakness is not broad-based. Operation, service and maintenance posted record profit, and overseas margins improved thanks to stronger activity and the first-time consolidation of the US acquisition. So the right read is not that the engine has weakened. It is that the engine now runs at two speeds: service and overseas work are helping, while Israeli contracting still needs compensation, efficiency and better execution.

Electra Consumer: 2025 already looks like a turning point

Electra Consumer increased revenue to ILS 7.567 billion, up about 4%, but the more important number is segment profit, which jumped to ILS 433 million from ILS 324 million. The presentation also shows ILS 116 million of net profit and a sharp EBITDA improvement. This is no longer cosmetic.

The improvement came from several places. Food retail improved through stronger sales in Carrefour-converted stores, lower expenses and the sale of seven stores during the year. Electrical retail, sport and leisure, and electrical consumer products also helped. But the quality-of-profit question still matters: part of the improvement includes store disposals and investment-property revaluation. So 2025 is a strong proof year, not yet a fully clean base year.

What matters for Elco is the role change. If Electra Consumer used to be a drag, it is now becoming a leg that can offset some of the volatility in Electra and Electra Real Estate. That is especially important in a holdco, because one upstream dividend source is rarely enough.

Electra Real Estate and Supergas: one improvement, one squeeze

Electra Real Estate cut its segment loss to ILS 68 million from ILS 355 million. That is a big improvement, but investors need to understand the driver. It did not come from a simple clean operating surge. It also came from a much smaller reduction in promote receivables, ILS 17 million versus ILS 142 million in 2024, and from a better pace of realizations. At the same time, investments in equity-accounted entities fell from ILS 2.281 billion to ILS 1.894 billion, a sign that some value is indeed moving from closed balance-sheet positions into cash distributions or exits.

But Electra Real Estate is still far from a frictionless story. The stronger shekel created roughly USD 20 million of finance expense, mainly on unhedged shekel bonds. The debt funds had to take over dozens of transactions, and Fund II alone paid distributions of USD 195.5 million in 2025 while still holding back USD 36 million for blockers. Realizations are real, but the money does not always move immediately and cleanly.

At Supergas Power the picture is almost the reverse. Revenue rose to ILS 1.036 billion from ILS 889 million, mainly because of power sales growth and higher LPG volumes, but segment profit fell to ILS 8 million from ILS 19 million. The Bazan hit and the BazA malfunction forced the company to rely more on imported LPG and absorb additional costs. So here too, Elco is seeing growth without fully keeping the margin.

That chart explains why the headline “Elco returned to profit” is true, but incomplete. The return to profit mainly came through a sharp improvement at Electra Consumer and a much smaller drag from Electra Real Estate, while the biggest operating engine, Electra, actually weakened at the profit line.

Cash Flow, Debt, and Capital Structure

This is where the framing matters. Elco is not a single-business cash-generation story. It is a holdco freedom-of-capital story. So the right frame here is all-in cash flexibility: how much cash is left after the actual uses of cash, not before capex, lease payments, dividends and debt service.

At the consolidated level, cash from operations before land purchases stood at ILS 1.214 billion. After ILS 271 million of land purchases, operating cash flow stood at ILS 943 million. That is a good number, but it does not stand alone. In the same year the group used ILS 740 million for investing activity, repaid ILS 421 million of lease liabilities, paid ILS 194 million in dividends, and repaid ILS 1.661 billion of long-term liabilities. So despite solid operating cash flow, consolidated net financial debt still rose to ILS 7.078 billion from ILS 6.674 billion.

In plain terms, the group generates cash, but it also consumes a lot of cash. This is not a holdco sitting on a simple open cash machine.

The parent layer is sharper still. In the solo accounts, cash fell from ILS 50 million to ILS 18 million. Solo operating cash flow was only ILS 39 million. It was supported by ILS 80 million of dividends from subsidiaries, while Elco itself paid ILS 65 million in dividends, invested ILS 377 million into holdings, and received ILS 171 million from selling Electra shares. The year-end position is therefore a parent with substantial assets, but very little freely available cash.

That is the gap between created value and accessible value. Elco owns the assets, but the parent still depends on upstream dividends, asset monetizations and continued smooth access to debt markets.

The solo balance sheet says the same thing. Current assets were only ILS 28 million at year-end, against current liabilities of ILS 337 million. Of that, ILS 220 million was short-term commercial paper and loans, and ILS 97 million was current bond maturities. This is not an immediate crisis story, but it is also not a comfort story. It is a rollover story supported by asset quality and market access.

That said, this is not a covenant-stress case. On the contrary. Consolidated net debt to capital stood at 58%, while the bond documents allow 77.5% to 78%. Group equity stood at ILS 5.122 billion, far above the minimum thresholds in the bond indentures. The solo equity-to-assets ratio, net of unrestricted cash and short-term investments, was about 68%. So the problem is not covenant proximity. The problem is freedom of access.

The parent debt schedule is spread, but it is not empty: ILS 317 million comes due in 2026, including ILS 220 million of commercial paper and ILS 97 million of bonds. After that come ILS 145 million in 2027, ILS 184 million in 2028 and ILS 154 million in 2029. That is still manageable for a high-rated issuer, but it requires the market to believe that dividends, asset sales and debt-market access will keep working.

The right conclusion from this section is straightforward: there is no classic covenant crunch here, but there is a real accessibility issue. That distinction matters a great deal in a holdco.

Outlook

Before getting into the detail, five points make 2026 genuinely interesting:

• First finding: the return to consolidated profit still does not translate into strong parent-level earning power. ILS 19 million is a long way from a relaxed parent layer.
• Second finding: Electra enters 2026 with a massive backlog, but the test is not the size of the backlog. It is the recovery of margins in Israeli projects.
• Third finding: Electra Consumer no longer looks like a problem to manage, but like an earnings leg that must now prove durability.
• Fourth finding: Electra Real Estate has moved from defense to offense, but the thesis is still exposed to realizations, promote timing, FX and debt-fund clean-up.
• Fifth finding: The George moves through 2025 as a yellow flag, but 2026 will be judged by whether the lease and management agreement can turn it from a balance-sheet headache into an asset that actually serves the parent.

What kind of year is this

For Elco, this is not a clean breakout year. It is a proof year at the parent level and a bridge year at the group level. The big businesses are functioning better, but the market still needs to see that the improvement can move up the chain and become cash, dividends and parent-level earnings.

What has to happen at Electra

Electra has to show that its record backlog is not coming at the expense of profit quality. In practical terms, that means better execution in Israel, compensation progress on affected projects, and continued strength in service and overseas work. If that happens, 2025 will look like a margin trough in the Israeli operations. If it does not, the market will start asking whether the huge backlog is actually a margin trap.

What has to happen at Electra Consumer

Electra Consumer has to prove that the improvement in food retail and electrical retail is not dependent on property-related support, store disposals or one-off items. The 2027 presentation targets are ambitious enough, but the path there runs through at least one year of real operating stability. For Elco, this matters because Electra Consumer is the leg that can provide less volatile upstream cash.

What has to happen at Electra Real Estate

Electra Real Estate needs to keep realizing, keep fundraising, and show that cash does not get stuck between the cash event and distributable cash. The 2025 numbers are better. Fund V is underway, realization volume improved, and Fund II distributed heavily. But the market will still test three things: whether lower US rates actually help values and promote, whether FX keeps hurting through unhedged shekel bonds, and whether the debt funds stay contained rather than becoming a new drag.

What has to happen at the parent

At the parent level the story is simpler and tougher: Elco has to rebuild cash. The post-balance-sheet dividends help, the rating helps, and the NAV discount offers a theoretical cushion. But if over the next two to four quarters Elco does not show a visible recovery in solo cash or a disciplined reduction in solo net debt, the market is likely to stay skeptical even if the underlying holdings continue to improve.

What the market may miss in the near term

The market may look at the dividend, the rating and the discount and assume the case is fixed. That would be early. The real test is the combination of three checkpoints: Electra turning backlog into margin, Electra Consumer showing recurring profit quality, and Electra Real Estate converting realizations and new funds into cash that can ultimately reach Elco.

This is a small but useful signal. As of March 27, 2026, short float stood at 0.77% and SIR at 1.7, both below the sector averages. The market is cautious, but it is not building an aggressive downside position in the stock. That increases the weight of the next actual operating checkpoints.

Risks

Risk one: value can remain trapped below the parent

This is the central risk. Elco can own strong businesses and still remain short on parent cash. Any slowdown in upstream dividends, any need to support a subsidiary, or any disruption in debt markets will be felt most directly at the level that matters to Elco shareholders.

Risk two: Electra has not fully exited the disruption period

The huge backlog masks very real pressure on profitability in Israeli projects. Higher labor cost, longer execution timelines, labor shortages and still-uncertain compensation all have room to keep weighing on profit. If that continues, Electra may keep providing revenue without providing enough value transfer upward.

Risk three: Electra Real Estate is still tied to a volatile external market

Lower US rates help, but this thesis remains highly sensitive to both the dollar and transaction markets. In 2025, the stronger shekel created about USD 20 million of finance expense, mainly on shekel bonds that were not hedged. In addition, the debt funds had already taken over management of 24 deals, and expected credit losses rose to USD 8.3 million. That is not an edge case. It is part of the model in a more difficult market.

Risk four: The George still has not proved itself

Buying the remaining 70% and then taking a ILS 54 million impairment shows that 2025 was not a stabilization year. The Israel Canada lease and management agreement reduces uncertainty, but it has not yet proved what the asset can contribute to Elco. Even the ILS 383 million recoverable amount is still an execution-dependent economic value, not liquid cash.

Risk five: Supergas is exposed not only to competition, but also to external chokepoints

The Bazan hit and the BazA malfunction showed how dependent Supergas is on supply infrastructure. That is a different risk from demand. Customers may remain, but the supply mix can become more expensive and squeeze profit.

Conclusions

Elco looks better today than it did at the end of 2024. Electra Consumer has turned from a weak leg into a supportive one, Electra Real Estate is no longer as frozen, the rating remains high, and the group is back to net profit. But the core blocker has not moved: the parent still has limited cash, not much attributable earnings, and a high dependence on value being pushed up from below. That is why the near- to medium-term market read will be driven less by asset size and more by accessibility.

Current thesis: Elco enters 2026 with better assets and a better operating base, but not yet with a parent layer that is clean enough for the discount to close by itself.

What changed versus 2024 is not the structure, but the quality of the engines. Electra Consumer moved from weak leg to supportive leg, Electra Real Estate became less damaging, and the group returned to profit. What did not change is that the market still looks first at the parent.

Counter thesis: the current discount may not be an opportunity at all, but the right price for a holdco where much of the improvement sits below the parent, minorities absorb a large share of the profit, and The George adds another private-asset layer of uncertainty on top of solo debt.

What could change the market interpretation over the next few quarters? Backlog turning into margin at Electra, another solid quarter at Electra Consumer without meaningful one-off help, continued realizations and distributions at Electra Real Estate, and a visible rebuild in Elco’s solo cash.

Why does this matter? Because the key question at Elco is not whether there is value in the portfolio. It is whether that value can reliably reach the parent and then the common shareholder.

Over the next two to four quarters the thesis gets stronger if Electra restores Israeli margins, Electra Consumer proves repeatability, Electra Real Estate keeps realizing and upstreaming cash, and Elco rebuilds parent-level cash. It weakens if the improvement remains accounting-level or subsidiary-level only, without a clear move toward Elco’s own shareholder economics.