Mor Gemel Pension In The First Quarter: Profit Is On Pace, Pension Still Is Not

Mor Gemel Pension opened 2026 with a quarter that strengthens part of the positive thesis, but also defines clearly what has not yet been proven. Adjusted pre-tax profit was NIS 41.1 million, an annualized run rate of NIS 164.6 million against company guidance of NIS 140 to 160 million, and assets under management kept rising after quarter end. That is the working part of the story: the provident-fund engine still carries most profitability, and this time DAC, deferred acquisition costs, did not absorb additional cash but declined slightly. The difficult test remains open. Pension assets and revenue are growing quickly, but the pension segment still lost NIS 7.3 million before tax in the quarter, close to the same order of magnitude as the comparable quarter. At the same time, regulatory capital surplus slipped slightly despite quarterly profit, while the company keeps distributing dividends and buying back shares. The first quarter therefore does not fully reset the read. It shows that Mor can meet the 2026 profit guidance, but still has to prove that pension, cash and capital are converging in the same direction.

What The Quarter Actually Proved

The positive point in the quarter is not only the higher profit. Mor has already reached a scale where higher assets under management flow quickly into management-fee revenue, and pre-tax profit rose to NIS 40.3 million from NIS 28.2 million in the comparable quarter. Adjusted pre-tax profit, which the company uses to exclude phantom units, options and, from this quarter, legal provisions that it does not view as part of core activity, reached NIS 41.1 million. The gap between reported and adjusted profit was small this quarter, about NIS 0.8 million, so the conclusion does not depend on a large adjustment.

Management-fee revenue rose to NIS 198.1 million, up about 33% year over year. Total expenses increased 30.5% to NIS 160.0 million, so pre-tax profit grew faster than revenue. That is an early sign of operating leverage, but not full proof yet. Commissions, marketing and acquisition expenses increased 38.4%, faster than revenue, due to ongoing agent commissions and amortization of deferred acquisition costs. The broader cost benefit behind 2026 guidance is also expected to come from an amendment to the existing operating agreement, so more than one quarter is needed to show that the cost base is really beginning to moderate.

The number that explains why the market will keep following the company is the asset base. At the end of March 2026, Mor managed NIS 125.4 billion, compared with NIS 121.8 billion at the end of 2025 and NIS 90.1 billion at the end of March 2025. By May 12, 2026, the total had already risen to NIS 135.3 billion. Part of the increase comes from market returns, so it should not be read as entirely clean business inflow, but the combination of positive net accumulation and positive returns already gives the company a larger revenue base at the start of the year.

This naturally continues the previous annual analysis. The key question then was whether Mor could approach its 2026 guidance without widening the gap against cash flow and without letting pension keep consuming the profit generated by provident funds. The first quarter answers the first part well: the profit run rate fits the guidance. The other two parts still need more evidence.

Pension Is Growing Fast, But The Loss Is Closing Slowly

Provident funds still carry the company. In the first quarter, the provident-fund segment generated NIS 183.9 million of management-fee revenue and NIS 45.5 million of pre-tax profit. In the comparable quarter, revenue was NIS 140.7 million and pre-tax profit was NIS 34.8 million. Revenue and profit therefore grew at a similar pace, around 31%, and the segment profit rate remained almost stable.

Pension shows a different picture. Pension assets increased from NIS 16.4 billion at the end of 2025 to NIS 18.1 billion at the end of March and NIS 19.9 billion by May 12. Segment management-fee revenue rose to NIS 14.2 million, up about 69% year over year. But the pre-tax loss declined only from NIS 8.4 million to NIS 7.3 million. In business terms, more assets and more fees are already coming in, but operating infrastructure, service costs, payroll, financing and commissions still absorb a large part of the improvement.

That gap matters because Mor continues to present 2026 adjusted pre-tax profit guidance of NIS 140 to 160 million, but writes that it is still examining the earlier forecast for the pension segment to move to adjusted pre-tax profit. That is a more cautious formulation than presenting 2027 as a target already on a fixed track. It does not remove the possibility that pension turns profitable, but it keeps the burden on operating proof: lower cost per shekel of assets, better service efficiency and continued growth in fee revenue without further fee-rate erosion.

The fee rates themselves explain why asset growth is not enough. In the comprehensive pension fund, the average asset-management fee rate was 0.19% in the quarter, and in the general pension fund it was 0.16% for active and inactive members. In the comprehensive fund, Mor is a selected fund through October 31, 2028, so this growth comes with a relatively low product price. That helps member growth and accumulation, but it means the move to profit depends more on operations, expenses and acquisition cost than on one more increase in assets.

In the focused pension analysis, the test was whether asset growth was moving the segment toward breakeven, not merely increasing the activity base. The first quarter leaves the conclusion mixed: the revenue side is moving quickly, but a quarterly loss of NIS 7.3 million still does not prove a clear move to profit in 2027.

DAC Stopped Draining Cash This Quarter

The more surprising point in the quarter comes from the cash picture. In 2025, DAC was the item that explained why net profit of NIS 70.5 million became only NIS 27.9 million of operating cash flow. In the first quarter of 2026, the opposite happened: deferred acquisition costs declined from NIS 409.4 million at the end of 2025 to NIS 402.4 million at the end of March, and cash flow benefited from a net NIS 7.0 million decrease in that item.

That does not put the issue behind the company. Operating cash flow was only NIS 15.0 million against net profit of NIS 25.9 million. This time the gap also reflected higher tax advances and movements in receivables and payables. The quarter therefore gives a good answer to one of the concerns raised in the previous DAC analysis, but it is not enough to say that profit is now steadily converging into cash.

The all-in cash picture for the quarter looks like this: operating activity generated NIS 15.0 million, investing activity generated NIS 8.6 million, and financing activity used NIS 8.0 million, mainly NIS 5.0 million of share buybacks and NIS 2.5 million of bank-loan repayment. The roughly NIS 14 million dividend declared in March did not leave in cash during the quarter, but was paid in April. The quarter's cash test is therefore not only profit versus operating cash flow, but profit versus cash flow after cash uses already approved or paid shortly after the period.

The note on deferred acquisition costs adds a layer of caution. In provident funds, the actual 6-year amortization period produced NIS 23.9 million of amortization in the quarter. If the period had been 8 years, net profit would have been about NIS 3.9 million higher, while a 4-year period would have lowered it by about NIS 2.1 million. Pension sensitivity is much lower in the current quarter. The main accounting sensitivity therefore still sits in provident funds, the profitable engine, so earnings quality depends on estimates as well as on inflows.

Capital Return Raises The Capital Test

Mor is not under immediate funding pressure. Equity stood at NIS 254.4 million at the end of March against a regulatory capital requirement of NIS 183.6 million, leaving a surplus of NIS 70.8 million. The financial covenants are far away: against the banks, assets under management were about NIS 125 billion versus a NIS 40 billion threshold, and the coverage ratio was about 4.69 against a 1.1 threshold. In the bonds, equity and net financial debt to CAP are also far from the immediate repayment, interest step-up and dividend-blocking thresholds.

But the test is not only covenant compliance. Capital surplus declined from NIS 72.1 million at the end of 2025 to NIS 70.8 million at the end of March, despite quarterly profit of NIS 25.9 million. The reason is clear: the capital requirement rose with assets under management and company expenses, while equity already absorbed a declared dividend and a buyback. After quarter end, another dividend of about NIS 21 million was added, expected to be paid in June, and the buyback plan still had up to about NIS 15 million remaining out of its NIS 20 million ceiling.

On a static calculation only, with no assumption of additional profit and no assumption of a further increase in the capital requirement, the May dividend and the possible remaining buyback could reduce the capital surplus from about NIS 70.8 million to about NIS 35 million. That still does not point to pressure, but it does change the interpretation of capital return. As discussed in the previous capital-allocation analysis, the question is not whether Mor can distribute cash and buy back shares now. It can. The question is whether 2026 earnings will rebuild the surplus while asset growth continues to raise the regulatory requirement.

The market is not ignoring this friction entirely. The latest short-interest data show a short balance of 574.6 thousand shares on May 8, 2026, about 2.02% of float, with SIR of 5.28 versus a sector average of 2.34. That is not an exceptional short trade that defines the stock, but it is a medium level of skepticism that fits the quarter's central question: will profit, cash and capital begin to converge, or will growth keep requiring more capital before pension stands on its own?

Conclusion

Mor's first quarter is more positive than negative, but not enough to settle the 2026 to 2027 tests. The company is already running at a profit pace that supports full-year guidance, assets under management continued rising after March, and DAC decreased during the quarter instead of expanding further. Those are three meaningful points, especially after 2025, when earnings quality was tested through the gap against cash.

The constraint remains pension and capital. Pension is growing assets and revenue quickly, but a NIS 7.3 million quarterly loss still does not prove a near-term move to profit. Capital remains comfortable against all thresholds, but surplus capital is no longer automatically growing with profit because the regulatory requirement is rising and the company continues to return cash to shareholders. The next few quarters need to show three things: adjusted profit staying within 2026 guidance, operating cash flow moving closer to net profit, and a more meaningful narrowing of the pension loss. If all three appear together, Mor will be able to show that pension growth is not only an expansion of scale but a move toward a more profitable business. If not, the market will keep reading provident funds as a good engine funding a longer transition period in pension.