Hachshara Hitachdashut in the first quarter: the raise bought time, cash conversion still has not worked

Hachshara Hitachdashut entered 2026 with more projects moving into execution, but the first quarter still does not prove that this transition is starting to work at the cash level. The private raise of roughly NIS 30 million lifted cash and equivalents to NIS 47.7 million, yet operating activity consumed NIS 20.3 million in three months, more than double the comparable quarter. That gap matters because it separates a company with a large project pipeline from a company that can fund that pipeline's maturation through buyer collections. The project appendix actually strengthens the value side of the story: De Haas has almost finished contributing, while Bavli, Ramla, Hankin and Kiryat Yam hold far more expected gross profit than has already been recognized. Still, most of that profit will arrive only if permits, financing, marketing and collections keep pace, while advances fell and inventory keeps absorbing cash. The quarter is therefore not weak only because of the accounting loss. It is more concerning because operational progress is still externally financed rather than funded by the projects themselves.

The company is already executing, but this is still a working-capital machine

The company is an urban-renewal residential developer in Israel. Its economic engine is not a stable income-producing asset or ready inventory sales, but a long move from a signed and planned project to a financed, built, sold and collected project. The most important early indicator is therefore not only the number of housing units in the pipeline, but how much of that pipeline has reached a stage that generates revenue, advances and cash flow.

Business progress continues. In January 2026, construction works began at Ramla Ben Gurion phase A and at Bavli Tel Aviv. In January, the planning committee approved the Borochov Jerusalem zoning plan after objections, and in May the Bar Lev Tel Aviv project received a conditional permit. These are positive events because they reduce planning risk and move part of the pipeline closer to execution.

But this is still not a company where progress immediately reaches the income statement or the cash account. Quarterly revenue was NIS 17.8 million, down from NIS 22.6 million in the comparable quarter, and gross profit fell to NIS 1.7 million. The result mainly reflects De Haas, with Bavli and Ramla only starting to appear. In other words, the new projects are beginning to enter the accounts, but not yet enough to cover headquarters, selling and financing costs.

This also continues the test set in the prior annual analysis: the move from planning to execution has already happened, but shareholders still need to see how fast it becomes accessible cash after partners, Menora, minority interests and financing costs. The first quarter does not close that gap. It only shows that the company has moved deeper into the stage where execution must be financed before collections catch up.

The raise lifted cash, but operating burn worsened

The all-in cash picture for the quarter is clear: operating activity used NIS 20.3 million, investing activity contributed NIS 5.0 million mainly from changes in restricted cash, and financing activity contributed NIS 30.3 million mainly from the equity raise. The final cash movement was positive, but its source was not operating activity.

The negative operating cash flow is not just a quarterly loss of NIS 4.4 million. Working-capital adjustments tell a sharper story: buildings and land inventory increased by NIS 7.6 million, receivables and other debit balances increased by NIS 2.2 million, while buyer advances and obligations to provide construction services fell by NIS 8.0 million. That is a difficult mix for a project company: more cash goes into execution and inventory, while less cash is received up front from buyers and construction-service liabilities.

Advances also fell on the balance sheet itself, from NIS 41.7 million at year-end 2025 to NIS 39.1 million at the end of March 2026. Obligations to provide construction services fell from NIS 139.2 million to NIS 136.2 million. Against that, the company still carries NIS 193.3 million of buildings inventory for sale and NIS 91.5 million of land and development inventory. That does not mean projects are not progressing. It means progress requires funding before it produces enough collection.

The February 2026 equity raise bought the company time. It issued 2.996 million shares at NIS 9.86 per share and raised roughly NIS 30 million gross, alongside 2.996 million non-tradable warrants with an exercise price of NIS 11.86 until February 2027. About NIS 2.5 million of the proceeds was attributed to the warrant equity component. This strengthens near-term liquidity, but it also reminds investors that the company still depends on the capital market and external partners during the interim stage.

The equity raise is not the only layer of support. In March 2026, the company approved an extension of its arrangement with the parent company to provide guarantees from time to time for obligations of the company and controlled entities, without consideration. That helps the company advance projects where guarantees and financing frameworks are part of the work. It also highlights that the model still needs a financing layer above the project itself.

In addition, the Hankin partnership, held 75% by a consolidated subsidiary, had an equity deficit of NIS 1.1 million at the end of March and a quarterly loss of NIS 1.1 million. Hankin itself holds expected company-share gross profit of NIS 13.9 million, but for now the partnership is at a stage where current liabilities exceed current assets. This is a good example of the gap between future development profit and the financial position during execution.

The market layer adds another caution signal. Short interest as a percentage of float is low, at 0.90% in early May, but the SIR of 22.47 is very high versus the sector average of 3.38. This is not a clear negative market thesis, but it can amplify moves around financing, permit or collection news.

The project appendix shows large value that is still barely recognized

The most important number in the project appendix is the gap between expected gross profit attributable to the company and the profit already recognized. Across the five main projects presented as under construction or in planning, the company's share of expected gross profit is about NIS 210.4 million. Only about NIS 11.1 million had been recognized by the end of March 2026, most of it from De Haas, which is already at 86% financial completion.

This table explains why reading the company through the quarterly loss misses part of the picture, but also why reading it through expected gross profit may be too early. De Haas has almost exhausted its contribution. The next value engines are Bavli, Ramla and Kiryat Yam, but all three still show very low recognition relative to their expected profit. In Kiryat Yam, for example, binding contracts had been signed for 72 units by the end of March and another 5 units after the balance sheet date, but no gross profit had been recognized by quarter-end.

HaAliya Hashniya in Haifa remains another major proof point. The project is presented with 715 housing units, 539 units for sale, 96% signatures, expected gross profit of NIS 315 million and expected company-share profit of NIS 158 million. But the status still includes a demolition permit and a conditional building permit, while the company is promoting a full building permit. The expected maturation date for construction start is Q4 2026, so the project still depends on a full permit, financing and an execution contractor.

Conclusions

The first quarter reinforces the read that the company advanced operationally but has not yet passed the cash test. On the positive side, more projects entered or approached execution, the project appendix shows substantial expected gross profit attributable to the company, and the private raise improved liquidity. On the negative side, operating activity consumed NIS 20.3 million, advances declined, and a large part of the value still sits in projects where recognition is very low or where permits and financing have not yet been completed.

The current conclusion is that the company is in a proof year, not a breakout year. For the read to improve, the next quarters need to show higher advances and collections from Ramla, Bavli and Kiryat Yam, progress at Kiryat Yam beyond demolition and excavation permits, and a full permit or clearer financing for HaAliya Hashniya. The counter-thesis is that the first quarter is simply too early to judge, and that project companies naturally receive profit and cash with a lag after works begin. That is a reasonable argument, but it will remain reasonable only if the next reports show that the lag is beginning to close rather than lengthen.