Paz in the first quarter: the operating engine works, now cash has to keep pace
Paz opened 2026 with EBITDA of NIS 370 million and net profit of NIS 163 million, but the quarter also carried a war effect: direct marketing and aviation improved profitability while working capital absorbed cash. The new 800 plan turns 2026 into a proof year across transportation margins, Pazgas, food retail, and the conversion of real estate and dividends into accessible cash.
Paz opened 2026 with a quarter that strengthens the operating story, but does not close it. Net profit rose to NIS 163 million and EBITDA reached NIS 370 million, yet the more important point is the gap between profitability and actual cash: cash flow from operations fell to NIS 147 million because working capital absorbed cash, while the company-defined adjusted free cash flow rose to NIS 177 million. Operation "Roaring Lion" helped profitability in transportation energy and Pazgas through a shift toward direct marketing, aviation, and a better gas margin, but it also moved activity toward customers with longer credit terms and pushed part of the inventory gain into the second quarter. The quarter is therefore not just another proof that the company no longer depends on an in-group refinery. It is an early test of its ability to fund a high dividend, a growth plan through 2029, and real estate monetization without working capital absorbing the improvement. Debt metrics are still comfortable, the rating was raised to ilAA-, and covenants remain far away, so the active bottleneck is not immediate liquidity. The bottleneck is quality of proof: whether the profitability improvement can recur without an unusual security event, and whether shareholder distributions remain covered by cash after investments, leases, and customer-credit needs.
An Energy And Retail Platform Measured In Cash
Paz is already broader than a fuel-station company. It operates 264 energy complexes, 315 food retail branches, LPG and electricity activity through Pazgas, operating and income-producing real estate, and an industrial and aviation-services layer. Its economic engine sits on four pockets: transportation energy that generates volume and cash, food retail that increases customer frequency, Pazgas as a second energy arm, and real estate that can convert part of the asset base into cash.
The annual review from March 2026 already framed this question in the previous analysis: the operating engine had strengthened, but not all value was equally accessible to shareholders. The first quarter adds a partial answer. Paz showed that the engine works under an external supply model, but also showed how quickly an outside event can move customer mix, working capital, and profit timing.
The 800 plan sharpens the test. The company is targeting annual profitability of NIS 800 million by the end of 2029, including NIS 100 million in average annual capital gains from real estate disposals. That target is not tested only through reported profit. It will be tested through the ability to grow EBITDA from ongoing activity, open food retail stores without margin erosion, expand LPG and electric charging, and monetize real estate without damaging the station network that supports a large part of the value.
Profit Improved, But The War Distorted The Comparison Base
Revenue fell to NIS 2.684 billion from NIS 2.785 billion, mainly because of lower fuel prices in transportation energy. That decline does not tell the story. Gross profit rose to NIS 689 million from NIS 626 million, gross margin rose to about 26% from about 22%, and operating profit rose to NIS 236 million from NIS 217 million. Net profit increased by only NIS 7 million, but the comparable quarter included about NIS 32 million of capital gains from asset disposals, so the quality of the comparison is better than the reported net-profit increase.
The segment split matters more than the consolidated line. Transportation energy generated EBITDA of NIS 128 million versus NIS 97 million, even though fuel volumes in the presentation were almost unchanged, 635 million liters versus 638 million liters. Pazgas and renewables rose to EBITDA of NIS 78 million from NIS 59 million. Food retail increased moderately to NIS 114 million EBITDA, while keeping relatively high profitability. Real estate fell to NIS 50 million EBITDA from NIS 83 million, mainly because the comparable quarter included capital gains from selling two assets.
Operation "Roaring Lion", which began on February 28, 2026, explains much of the quarter's unusual character. It reduced station and electric-charging sales, lifted supermarket sales, increased direct-marketing and aviation transactions, and improved the Pazgas gas margin while lowering quantities. In transportation energy, operating profit rose to NIS 71 million from NIS 41 million. That is not a volume jump, but a more profitable mix.
This is positive for the platform because the business is not dependent only on car traffic through stations. Still, it needs to be tested in the coming quarters: if sales mix normalizes, the market will want to see the margin stay high without an unusual boost from direct marketing and aviation. In food retail, turnover including franchisees rose to about NIS 809 million and same-store sales rose about 5%, but gross margin was almost unchanged, 37.7% versus 37.9%. That is stability, not a breakout.
Adjusted Cash Flow Is Stronger Than Actual Cash
The quarter needs a cash reading separate from profit. Cash flow from operations fell to NIS 147 million from NIS 306 million in the comparable quarter. This is not evidence that the cash-generation engine collapsed. It reflects a cutoff-date shift in customer mix: more direct-marketing customers with different credit terms and less station activity that converts to cash faster. Operating working capital moved to a positive balance of about NIS 36 million, from negative operating working capital of about NIS 65 million at the end of 2025, a change of about NIS 101 million.
| Cash Metric | Q1 2026 | Q1 2025 | What It Means |
|---|---|---|---|
| Cash flow from operations | 147 | 306 | Actual cash weakened because of working capital |
| Adjustment for operating working-capital changes | 171 | -8 | The company excludes an unusual cash absorption |
| Adjusted cash flow from operations | 233 | 217 | Normalized cash power looks stronger |
| Purchase of fixed and other assets | -56 | -52 | Current investment rose slightly |
| Company-defined free cash flow | 177 | 165 | The adjusted measure improved, but it is not the all-in cash picture |
The NIS 177 million of free cash flow is an adjusted measure: it excludes operating working-capital changes and the IFRS 16 effect, and deducts fixed and other asset purchases. It is useful for testing the recurring cash-generation power of the existing business, but it is not all-in cash flexibility. The all-in cash picture, meaning cash after actual operating cash flow, investments, dividends, NIS 73 million of lease principal repayment, and NIS 12 million of lease interest, is tighter: cash fell by NIS 127 million in the quarter to NIS 618 million.
This is not an immediate liquidity problem. The company has committed bank credit lines of about NIS 300 million through the end of 2027, its rating was raised to ilAA- with a stable outlook, and net financial debt to CAP was 42% versus a covenant limit of 75%-77%. But it is a reminder that a company distributing large amounts of cash cannot be screened only through accounting profit.
The 800 Plan Turns The Next Quarters Into An Execution Test
The shareholder distribution raises the burden of proof. On March 11, 2026, the board approved a NIS 200 million cash dividend paid in April, and on May 19, 2026, it approved another NIS 130 million dividend. The presentation shows NIS 570 million of cumulative dividends over the last 12 months and a 6.4% dividend yield. Paz is behaving here as a cash-return equity, not only as a growth company, and that requires recurring cash coverage after working capital, leases, and investments.
Two execution paths have to advance for the target to look more credible. In Ashdod, the conditions for the property sale became effective, but the expected after-tax profit effect is not material. In Haifa Bay, a data room was opened and non-binding offers were received, but there is still no buyer, consideration, or financial effect that can be estimated. At Pazgas, EBITDA rose to NIS 73 million and the company is progressing with an independent agency acquisition, but the test is service, collection, and operating control without working-capital pressure and without friction around the collective agreement ending in June 2026.
Paz's first quarter leans positive, but not cleanly. Operating profitability improved, the rating was raised, and covenants are distant, but actual cash was weaker and the new target mixes ongoing profitability with real estate disposals. 2026 opened as a proof year, not a breakout year. The point that will decide the next few quarters is whether actual cash can keep pace with reported profitability.
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