Supergas Power in the First Quarter: The Natural Gas Sale Should Cut Debt, Electricity Still Consumes Cash

Supergas Power enters 2026 with a transaction that can materially improve its debt profile, but the quarter itself still does not prove that the remaining core engines can stand on their own. Revenue rose to NIS 305.5 million, mainly from electricity and LPG, while operating profit fell to NIS 8.3 million and profit attributable to shareholders dropped to NIS 1.7 million. The sale of the natural gas activity to Aluma for about NIS 395 million, plus about NIS 11 million for the sold company's negative net financial debt, is the event that reshapes the company more than any quarterly profit line. Still, only about NIS 281 million should arrive at closing, plus that negative debt balance, while another NIS 114 million is deferred for up to 24 months. At the same time, electricity revenue grew 54% but the segment still posted an operating loss, and operating cash flow turned negative by NIS 24.8 million because of working capital. The current read is mixed: the sale buys time and focus, but after closing there will be less room to lean on a profitable annual gas segment and more need to prove that electricity and LPG can produce earnings and cash in the same group.

Company Overview

Supergas Power is no longer just a traditional LPG company. It has LPG operations, electricity supply to private and commercial customers, a natural gas and cogeneration activity that is being sold, and exposure to a U.S. energy project development company that is not a reportable segment. Its economic model is in transition: LPG is meant to provide profit and an existing customer base, electricity is meant to add growth, and the debt structure requires evidence that growth is not just revenue but also cash.

The continuity matters. The prior annual analysis asked whether LPG was still funding the transition into electricity. The first quarter brings back that question, but changes the pressure point: the company has already signed an agreement to sell the natural gas segment, so after closing it will rely mainly on LPG, electricity and complementary products. That makes the quality of electricity growth and the resilience of LPG less theoretical and more immediate.

The early numbers show the gap. Total revenue rose 13% from the parallel quarter, but gross profit fell from NIS 49.4 million to NIS 47.5 million. Gross margin declined from about 18.3% to about 15.6%. This was not a quarter in which growth flowed cleanly into operating profit. It was a quarter in which the company sold more, but part of the increase was absorbed by energy costs, the damaged natural gas segment, and electricity working capital.

The Natural Gas Sale Changes the Center of Gravity

The transaction with Aluma is not just an asset sale. It removes a segment that generated NIS 213.8 million of revenue and NIS 17.2 million of segment operating profit in 2025, but fell in the first quarter of 2026 to NIS 41.6 million of revenue and an operating loss of NIS 0.4 million. The pressure was not just accounting. The halt in gas supply from two of the three reservoirs during Operation Roaring Lion hurt supply to industry and buses, and cogeneration facilities did not operate during the combat period because of the gas shortage. The impact on the segment's operating profitability was estimated at about NIS 3 million.

The stated consideration looks large, but the payment structure matters as much as the amount. About NIS 281 million should be paid at closing, plus about NIS 11 million representing the negative net financial debt balance as of March 31, 2026. Another NIS 114 million is deferred for up to 24 months, index-linked and secured by a first-ranking pledge over 29% of the sold company's shares. The transaction is also subject to approvals from the Competition Commissioner and the Natural Gas Authority, with a 120-day timetable from signing and a possible 30-day extension for regulatory approvals.

This is the part a quick read can miss. The expected pre-tax gain of about NIS 25 million is not the central point. More important is that the transaction is structured on a locked-box basis as of March 31, 2026, so cash flow generated by the sold company after that date belongs to the buyer. In other words, Supergas Power receives consideration that can reduce debt, but gives up future contribution from a segment that was profitable in 2025. The transaction strengthens the balance sheet if completed, but raises the proof bar for the remaining activities.

Electricity Is Growing, Cash Is Still Stretched

Electricity is why the company still screens as a growth story. Segment revenue rose from NIS 75.0 million to NIS 115.3 million, and the operating loss narrowed from NIS 1.8 million to NIS 1.4 million. In the investor presentation, management points to lower electricity procurement costs, growth in electricity subscribers, and operational improvements in billing, collections and acquisition costs. That is the language of a company trying to show that the challenge is shifting from scale to efficiency.

Profitability has not closed the gap yet. The segment is still loss-making at the operating level, and group selling and marketing expenses rose to NIS 26.4 million, partly because of salary costs and credit-card commissions tied to electricity growth. More importantly, working capital tells a less comfortable story: operating cash flow was negative NIS 24.8 million, compared with positive NIS 4.8 million in the parallel quarter. The explanation given is a specific increase in electricity working-capital needs.

All-in cash flexibility after actual cash uses in the quarter does not look like surplus cash. After NIS 24.8 million used in operating activity and NIS 9.5 million used in investment activity, the company received net NIS 30.5 million from financing activity, mainly NIS 35.8 million of short-term bank credit, offset by repayments. Cash fell only modestly to NIS 58.4 million, but that happened because the balance sheet funded the activity, not because the activity itself released cash.

LPG Still Carries Profit, but Market Conditions Weigh

LPG remains the anchor. Segment revenue rose to NIS 148.5 million, mainly from higher quantities sold to business and private customers and price adjustments following higher energy prices. In the investor presentation, the company shows segment EBITDA of about NIS 25 million, compared with NIS 26 million in the parallel quarter, which included a one-time gain. That is positive: the core did not break in a difficult quarter.

The yellow flag is margin quality. The LPG price purchased from refineries is affected by average distillate prices, and energy prices rose sharply in early 2026. At the same time, the disruption at Ashdod Refinery, which began in the second half of 2025, continued to affect the full supply of LPG to the company. In the first quarter, which normally has high seasonal demand, the company usually has to bridge the gap between refinery output and demand through imports, and this time import costs rose meaningfully.

That does not mean the LPG segment has lost its strength. It does mean the first quarter does not allow the company to avoid the open question from last year: can it pass through energy and import costs to customers without eroding profitability. If the natural gas sale closes, LPG will have to do more than remain profitable. It will also have to fund the electricity proof period.

Cash, Debt and the Next Proof Points

The balance sheet is still far from immediate covenant pressure. Consolidated equity was about NIS 740 million, compared with a minimum threshold of NIS 340 million under Series A bonds and NIS 370 million under Series B bonds. Net financial debt to CAP was 45% against a 70% ceiling, and net financial debt to net balance sheet was 36% against a 67% ceiling. The company is compliant with its financial covenants, and the board determined that the working-capital deficit does not indicate a liquidity problem.

Still, debt and working capital are the right way to understand the quarter. Current liabilities rose to NIS 577.4 million, partly because short-term credit was used for electricity working capital. Consolidated working capital was negative by about NIS 107 million, even though this includes about NIS 71 million of customer deposits presented as current liabilities. At the parent-company level, cash at quarter-end was only NIS 0.25 million, against NIS 150 million of commercial paper and NIS 55.6 million of current bond maturities. That is not an immediate liquidity warning, but it explains why completing the natural gas sale matters so much.

The U.S. activity adds optionality, but also consumes resources. Balanced Rock Power posted a quarterly operating loss of USD 2.75 million and the same net loss, and the company recorded NIS 1.9 million of losses from equity-method investees. That activity also carries project development costs, deposits and equipment deposits in material amounts, alongside project guarantees and support instruments. It is not the center of the quarterly thesis, but it is a reminder that exiting natural gas does not turn the company into a simple LPG and electricity vehicle.

Conclusions

The first quarter points to a transition year, not a proven breakout year. The natural gas sale can reduce debt and sharpen focus, but it is still subject to approvals, includes deferred consideration, and removes a segment that was profitable in 2025 even though it was hurt in the first quarter. At the same time, electricity is already large enough to drive growth, but not yet profitable or cash-generative enough to replace the contribution of the sold segment.

The positive read will strengthen if three things happen over the next quarters: the transaction with Aluma closes and the immediate proceeds are actually used to reduce debt, electricity moves from operating losses toward more stable profitability without adding more working-capital strain, and LPG shows it can preserve margin under costly imports and volatile energy prices. The counter-thesis is clear: if the transaction does not close on time, if the immediate consideration does not cut debt enough, or if electricity keeps growing through cash use and short-term credit, the market may see less structural change and more deferral of the same profitability and cash-flow proof.