Shapir in the First Quarter: The Concession Deal Moves Capital Closer, Operations Still Consume Cash
Shapir opened 2026 with 14% revenue growth and net profit of NIS 59 million, but negative operating cash flow and a NIS 252 million cash decline keep capital recycling at the center. The agreement to sell 38.5% of a concession partnership for about NIS 366 million is the quarter's real step forward, as long as conditions and adjustments do not delay the cash.
Shapir left the first quarter of 2026 with a report that strengthens both sides of its story. On one hand, the business keeps expanding: revenue rose to NIS 1.557 billion, operating profit rose to NIS 118 million, and net profit rose to NIS 59 million. On the other hand, the quarter still did not solve the issue that was already open at the end of 2025: how to turn projects, concessions and real estate into accessible cash at a pace that funds the next investment cycle. The important progress came after the balance-sheet date, when the memorandum for selling part of the rights in three transportation concessions became an agreement with institutional investors, at NIS 9.5 million per 1% and expected consideration of about NIS 366 million. That is real progress on capital recycling, but still not cash in the bank: approvals are needed from grantors, lenders, the Tax Authority and the Competition Authority where required, while the consideration is subject to distributions, interest and adjustments. At the same time, operating cash flow remained negative at NIS 71 million and cash declined by NIS 252 million. The quarter therefore looks more like a promising transition point than a full solution.
Company Overview
Shapir is an operating and capital-allocation group with five engines: industry, infrastructure, concessions, real estate and logistics. Industry produces and sells construction and infrastructure materials. Infrastructure executes complex projects in Israel. Concessions hold long-term PPP projects. Real estate includes development, rental assets and protected housing. Logistics adds freight forwarding, storage and distribution.
The company is best understood through capital recycling. Industry and infrastructure can create profit and execution pace, but concessions, protected housing and real estate tie capital to long-life assets. The prior annual analysis marked that bottleneck: the engines were working, but capital had not yet been released. The first quarter does not replace that frame. It adds operating proof, while still showing that cash is not moving out of the assets quickly enough.
The market layer remains cautious. Short interest declined to 1.99% of float in mid-May, but it remains above the 0.59% sector average. SIR of 4.9 is less tight than the highs seen early in the year, but still leaves the stock in a place where investors are waiting for cash proof, not only accounting profit.
Profit Rose, Cash Has Not Yet Been Released
The quarter itself shows reasonable to good execution. Revenue rose 14%, gross profit rose 17%, and gross margin rose to 14.0% from 13.6%. Operating profit rose 30%, while lower net finance expenses and lower associate losses pushed net profit to NIS 59 million from NIS 21 million in the comparable quarter.
The segment breakdown shows mixed quality. In industry, total revenue rose only slightly to NIS 649 million, but segment profit rose to NIS 106 million and the margin rose to 16%, mainly from production-efficiency improvement. In infrastructure, revenue rose to NIS 682 million, mainly because of faster execution and especially the Purple Line, but segment profit rose only to NIS 36 million and the margin fell to 5%. In real estate, revenue more than doubled to NIS 194 million and profit rose to NIS 45 million, but the margin declined to 23% because of the weight of development projects. Concessions remained stable, while logistics held revenue but reported lower profit.
The problem is that profit did not turn into cash. The relevant cash frame here is all-in cash flexibility after actual cash uses. After negative operating cash flow of NIS 71 million, net investment outflow of NIS 73 million and negative financing cash flow of NIS 108 million, cash fell from NIS 613 million at the start of the year to NIS 361 million at the end of March. Financing activity included NIS 112 million of interest paid and NIS 24 million of lease repayments, so the quarter shows better accounting profit but lower cash flexibility.
The balance sheet reinforces the same point. At the end of March, the company had a NIS 181 million working-capital deficit. The board attributes this mainly to the accounting classification of revolving credit for land financing as a current liability, and to the classification of NIS 841 million of protected-housing resident deposits as current liabilities even though there is no economic expectation that all will be repaid within one year. That explanation matters, but it does not remove the dependence on credit recycling and collections. Parent-only data also shows only NIS 1 million of cash and designated cash, while profit came mainly from subsidiaries. That sharpens why the concession transaction matters more than ordinary improvement in consolidated profit.
The Concession Agreement Is the Real Progress
On May 20, 2026, the company signed an agreement to sell 38.5% of limited-partnership units into which rights in three concession projects will be transferred: Highway 6 North, Highway 16 and the Fast Lane. The price was set at NIS 9.5 million per 1% of the units, so expected consideration is about NIS 366 million. Compared with a memorandum-only situation, this is a material change: a defined sale percentage, a defined price and institutional buyers.
Still, the agreement is built like a complex concession transaction, not like a simple asset sale. Completion depends on approvals from the grantors, lenders, the Tax Authority and the Competition Authority where required. If the conditions are not met within 120 days, either side can cancel, subject to two possible 60-day extensions. The consideration will be reduced for certain distributions made by the concession projects from the end of the third quarter of 2025 through completion, interest will be added for a limited period, and the consideration will be adjusted based on actual distribution cash flow versus forecasts.
The partnership structure keeps management with the general partner owned by the subsidiary, but it also introduces restrictions. For five years, the subsidiary will not be able to transfer its holdings in the general partner or fall below 40% of the limited-partner holdings without prior consent from certain partners. Limited partners holding 85%, after excluding certain related parties, will be able to replace the general partner. The company is therefore moving toward capital release, but in return it is adding governance rules, veto rights and conditions to the asset layer.
Two additional events keep capital allocation open. The memorandum to sell the gas-distribution companies is still non-binding, even though it states NIS 230 million of consideration, possible additional consideration and an option to buy scrap-value rights for NIS 130 million plus 9% annual interest. At the same time, the company is advancing an application for a holding and control permit in BAZA as part of a preliminary review of potentially exercising options, but has not decided to exercise. In other words, the company is not only releasing capital. It is also preserving additional investment paths.
Conclusion
The first quarter gives Shapir an important proof point: operations are working, and the concession agreement is no longer just a general intention. If the transaction completes close to the disclosed terms, it can turn part of the value built in concessions into cash that reaches the group. That was exactly the missing proof after 2025.
The conclusion is still not clean. Operating cash flow is negative, cash fell sharply, working capital still depends on accounting explanations and credit recycling, and the company continues to hold additional investment options. The strongest counter-thesis is that the institutional transaction will close within months, that the working-capital deficit is not immediate economic pressure, and that industry, real estate and concessions provide a strong earnings base. The more cautious read is that the market will want to see three things before giving full weight to the improvement: cash from the concession transaction, collection of infrastructure project receivables, and progress in new projects without a heavy capital requirement. If that happens over the next 2-4 quarters, the first quarter will look like a move into a more mature capital-recycling phase. If not, Shapir will remain a company with good assets and improving profitability, but also with a cash bottleneck that still sets the pace.
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