G1 and Pal: the deal is already funded, the contribution still needs a full-quarter proof
Pal is already on G1's balance sheet through a roughly NIS 125.6 million investment and broader bank funding, but the profit accessible to shareholders barely appeared in the first quarter. For now, excess-cost amortization erased the February-March share of profit, and the next proof point is a full quarter that shows earnings and cash that can move up the chain.
G1 no longer has to prove that Pal reached the balance sheet. That has already happened: the cash consideration for 50% of Pal has left the company, credit facilities are already funding the new layer, and the balance sheet shows a sharp jump in investments in equity-method companies. What has not yet happened is the part that matters more for shareholders: clear profit and cash that can actually be used. In the first quarter, G1's share of Pal's February-March profit was NIS 561 thousand, but excess-cost amortization of NIS 604 thousand was deducted against it. That is not a verdict against the deal, because this is still a partial quarter immediately after closing. But it does show that the asset is already funded before its contribution is accessible, so the next test is not whether Pal is profitable, but whether its profit remains positive after excess-cost amortization and starts turning into cash that can move up to the group.
Pal Has Not Yet Moved From Its Profit To G1's Profit
The previous Pal-focused analysis published in March left a straightforward question: did G1 buy a technology engine that will also lift profit and cash flow for shareholders, or mainly a strategic asset that needs funding before the proof arrives. The first quarter does not close that question, but it narrows it. Pal now has initial figures, and they tell a two-layer story.
On a three-month basis, Pal reported revenue of NIS 7.6 million, gross profit of NIS 4.4 million, operating profit of NIS 2.7 million and net profit of NIS 2.2 million. Those numbers point to a profitable activity, not a loss-making business acquired only for future promise. But G1 began recognizing results only from the acquisition date, meaning February through March, and Pal's net profit during that included period was NIS 1.1 million. Half of that, NIS 561 thousand, belonged to G1, and NIS 604 thousand of excess-cost amortization sat against it.
| Layer | What already appears in the quarter | What is still unproven |
|---|---|---|
| Acquisition of 50% of Pal | NIS 125.6 million investing cash outflow | That the price generates accessible profit at a pace that justifies the funding |
| Pal's three-month results | NIS 7.6 million of revenue and NIS 2.2 million of net profit | That this pace holds in a full post-closing quarter |
| G1's February-March share | NIS 561 thousand | That the profit share remains material after excess-cost amortization |
| Excess-cost amortization | NIS 604 thousand deduction | That Pal's contribution will not be swallowed by acquisition accounting |
The point is not that Pal is unprofitable. It was profitable. The point is that this profit has not yet reached G1's line cleanly. The equity-method structure, the 50% stake and excess-cost amortization create friction between the acquired business and the earnings accessible to public shareholders. The first quarter is therefore a useful opening file, but a weak full economic proof.
Debt Maturity Improved, But Cash Proof Has Not Arrived
The deal already has a funding solution. On March 29, 2026, G1 signed six-year bank loan agreements with two banks for NIS 60 million, at prime minus 0.2%. The loans replaced existing short-term loans, so total credit utilization did not decline. After the loans were provided, utilized short- and long-term borrowings stood at roughly NIS 180 million out of total credit facilities of roughly NIS 460 million.
This is the subtle point. On the one hand, six-year funding reduces some dependence on short-term credit and eases immediate pressure. On the other hand, it does not mean Pal is already funding itself. The cash-flow statement shows the sequence clearly: NIS 125.6 million went out for the acquisition of equity-method companies, total investing cash flow was negative NIS 127.0 million, and financing cash flow was positive NIS 126.5 million, mainly through higher short-term bank credit and new long-term loans.
This is the quarter's all-in cash flexibility picture: after the actual cash uses, including the acquisition, leases, interest and routine investments, the quarter relied on external funding to close the deal. It is not a normalized cash-generation picture for the existing business. The funding room exists, because total credit facilities are still far above the utilized amount. But as long as Pal's contribution does not move into earnings and cash at a clear pace, the financing is mostly a period bridge rather than proof of quality.
Access To Value Still Runs Through Two Filters
The first filter is accounting. Pal can report net profit, yet the portion that reaches G1 can look much smaller after a 50% ownership share and excess-cost amortization. In the first quarter, that gap was the whole story: the profit share was NIS 561 thousand, and excess-cost amortization was NIS 604 thousand. If in fuller quarters Pal generates enough net profit for G1's share to remain positive and material after amortization, the read can improve quickly. If not, the deal will remain a strategic asset that weighs on the balance sheet more than it strengthens earnings.
The second filter is cash. Profit from an equity-method company is not cash in the public company's bank account. For the value to become accessible, Pal needs to generate surplus after its own operating needs, and then investors need to see whether and what can be distributed up the chain. The first quarter does not yet provide proof of distribution from Pal. At the same time, G1 declared a NIS 4.1 million dividend in March, paid in April, and after the reporting date approved another NIS 5.4 million dividend. These amounts are not large relative to the Pal deal, but they keep the capital-allocation test alive: shareholder distributions should be supported by recurring cash, not only by available credit lines.
The working-capital deficit adds another layer. At the end of March, the consolidated working-capital deficit was roughly NIS 50 million, and the company stated that it has sufficient credit facilities to repay its liabilities. That eases the immediate liquidity question, but it does not replace the value test. A company can be funded and still not prove that an acquisition creates accessible cash.
The Next Quarter Needs To Turn Pal From Funding Into Proof
The current conclusion is sharp but limited: Pal looks like a profitable asset at the investee-company level, but not yet like a proven earnings and cash engine at G1's level. The deal has been funded, debt maturity improved, and credit facilities are available. Now a fuller quarter needs to show three things: positive Pal contribution after excess-cost amortization, a sign that equity-method profit can become accessible group cash, and credit utilization that does not keep rising simply to carry the transition. The counterargument is fair: two months of recognition after closing is too early to judge a deal meant to improve the technology layer over time. Until fuller proof arrives, Pal is first a funded balance-sheet asset, and only then a profit engine that still has to prove itself.
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