TASE in the first quarter: profit jumped, but the valuation needs more than one strong quarter

The first quarter of 2026 gave TASE strong proof of what was still open after 2025: the company did not merely benefit from higher trading volumes, it converted them into profit at an exceptional pace while the cost base barely moved. Revenue increased 40% to NIS 183.3 million, net profit rose 116% to NIS 77.4 million, and group expenses declined by 1%. That shows how powerful the operating leverage of a capital-market infrastructure company can be when trading volumes, custody, indices and issuance activity all work together. The picture is still not decisive: the move to Monday-Friday trading, a strong market backdrop and unusually high equity volumes supported the numbers, and this may not be a representative run rate. At the same time, the NIS 144.8 million dividend was much larger than the quarter's free cash flow, and capital and liquidity surpluses declined despite remaining wide. So the quarter improves the quality of the story, but it also raises the burden of proof: at a market value of roughly NIS 15.3 billion against LTM adjusted net profit of NIS 225.5 million, the market needs evidence that clearing, indices, the new trading week and cost discipline are building a recurring earnings base rather than just a good moment in a hot market.

Company Snapshot

TASE is the infrastructure layer of the Israeli capital market: trading, clearing, custody, listing, securities indices, data distribution and connectivity. All of that is reported as one business segment, but economically there are several engines. Trading and clearing commissions respond immediately to market volumes, while clearing-house services, listing fees, annual levies, index-usage authorizations, data distribution and connectivity should be more stable.

This quarter moves the company slightly beyond a simple margin story. It is still an infrastructure business with a relatively fixed cost base that earns more when activity volumes rise, but it is also a cash-return equity because distributions have become central to the picture, and an infrastructure growth platform around clearing, indices, dual listings and the new trading week. That combination is attractive, but it also creates the dilemma: high profitability is not enough when the market already prices in continuity.

The quarter's economic map is straightforward: trading and clearing commissions were 39% of revenue, clearing-house services 29%, listing fees and levies 16%, and data distribution and connectivity 16%. In quality terms, the clearing and index lines matter more than their current revenue weight because they help reduce the direct dependence on a single strong trading day. In risk terms, market volumes still set the tone, and they were unusually strong in Q1.

Profit Jumped Because Costs Barely Moved

The key number is not only the NIS 52.3 million increase in revenue versus the same quarter last year, but the fact that expenses edged down to NIS 84.0 million. The result was profit before financing income of NIS 99.3 million, more than double the comparable quarter, and a net profit margin of 42.2%. On an adjusted basis, excluding share-based payment expenses, adjusted EBITDA was NIS 115.6 million and the adjusted EBITDA margin reached 63.1%, compared with 47.2% in the comparable quarter.

The gap between revenue and costs is the central value point in the quarter. Compensation expenses, more than half of the adjusted expense base, declined slightly. Computer and communication expenses declined 7%, general and administrative expenses fell 27%, and marketing fell 34%. Higher depreciation, the Israel Securities Authority fee and other operating expenses did not change the picture. The company added revenue through existing infrastructure without paying a high marginal cost for it.

The source of the tailwind still requires caution. Average daily equity-market turnover, including ETFs and foreign funds, reached a record NIS 5.56 billion, up 39.7% from Q4 2025 and 92% from the same quarter last year. The move to Monday-Friday trading contributed to that: average Friday equity turnover was roughly NIS 2.9 billion, compared with roughly NIS 1.6 billion on Sundays in 2025. Foreign-investor activity on Fridays was about 40% of Friday activity versus about 15% on Sundays previously. This could become structural, but it needs several more quarters before it can be treated as the new base.

Clearing And Indices Reduce Dependence On Equity Volumes

Trading and clearing commissions rose 44% to NIS 71.1 million, but clearing-house services are the more important signal for quality. This line rose 69% to NIS 53.9 million and reached 29% of company revenue. Custodian fees increased 74% to NIS 22.7 million, and clearing-house services for members increased 83% to NIS 25.4 million. The increase reflects both higher assets held in custody and stronger member activity.

This changes the quarter's interpretation because the clearing line sits between market volumes and more recurring revenue. It is still affected by asset values and market activity, but it is less sharp than daily equity turnover. Remaining high after a cooling in volumes would be one of the stronger signs that the improvement was not only quarterly volatility.

Indices add another layer. Revenue from authorizations to use TASE indices rose 60% to NIS 10.6 million in the quarter, and assets tracking company indices reached NIS 157.6 billion, of which NIS 99.5 billion were linked to equity indices and NIS 58.1 billion to bond and T-bill indices. That is already above the NIS 147.3 billion base discussed in the prior index-activity analysis.

That makes the dilemma sharper. The more the index line grows, the more material a sale or strategic partnership becomes. A transaction that leaves the company with participation in future revenue or brings real international distribution could improve business quality. A transaction that converts a recurring engine into one-time cash could hurt precisely the component that reduces dependence on trading volumes. Q1 does not resolve that question, but it adds a new number that raises the economic cost of a poor answer.

Not every engine joined the surge. Total derivative contracts declined 13% from the comparable quarter, and revenue from index and FX derivatives declined. Effective commission rates also eroded in several markets, including equities, bonds, T-bills and mutual funds. Revenue rose because activity volumes and asset values jumped, not because the company managed to take a higher price in every line. That is the most important checkpoint for the next few quarters.

Cash Is Strong, And Execution Now Matters

The all-in cash flexibility picture is the second test of the quarter. This is not normalized cash generation before strategic uses. It is a check of how much cash remains after actual cash uses: investment in property, equipment and intangible assets, lease payments, loan repayment and dividends.

Net cash from operating activities was NIS 100.2 million, up 73% from the comparable quarter. After NIS 27.7 million of investment in property, equipment and intangible assets and NIS 2.4 million of lease payments, free cash flow was roughly NIS 70.1 million. That is a strong quarterly number, but the company paid a NIS 144.8 million dividend, including NIS 54.3 million as a special dividend, and repaid NIS 10.8 million of bank debt. So cash declined even in a quarter where the business worked well.

This is not a liquidity-stress signal. Cash, cash equivalents and short-term financial assets totaled NIS 407.6 million at the end of March, a NIS 120 million credit line was renewed and remained undrawn, and the company met its financial covenants. But it is a deliberate narrowing of room for maneuver: the liquidity surplus above regulatory requirements declined to NIS 237.7 million from NIS 309.6 million at year-end 2025, and the capital surplus declined to NIS 483.8 million from NIS 550.3 million.

The dividend does not look dangerous, but it raises the bar for discipline. Another buyback in 2026, if brought for approval, should be measured against the updated liquidity surplus rather than the gross cash balance. The post-quarter option outline, including 217,520 options for existing eligible employees at a fair value of NIS 11.8 million, can help cash but adds modest dilution and reinforces the cost test.

This is where the quarter's read closes. The annual analysis left open whether 2026 would be a proof year or merely a continuation of a strong market. Q1 tilts the answer in the right direction: clearing and data grew, Fridays brought higher foreign activity, and costs stayed disciplined. But at the current valuation the company still needs to show three things over the next 2-4 quarters: reasonable trading volumes without a one-off jump, continued growth in clearing and indices, and rebuilding of liquidity surplus before another large capital-allocation move. The structure of the index transaction, if disclosed, will be the sharpest trigger for a change in market interpretation.