Megido in the First Quarter: Execution Revenue Starts, Cash Conversion Still Lags

Megido opened 2026 with a quarter that supports the operating-growth story, but still does not solve the issue left open after 2025: sales and revenue recognition are running ahead of cash. Revenue more than doubled to NIS 114.0 million, apartment sales rose to 117 units, and the execution arm for Aura started to appear in the financial statements, so the company already looks larger and broader than it did a year ago. Still, customers and contract assets rose by NIS 46.9 million from the end of 2025, while contract liabilities rose by only NIS 15.3 million, and operating cash flow before land purchases was negative NIS 55.4 million. At the same time, the land purchases in Kfar Saba, Beit Dagan and Beer Yaakov turned the quarter into a financing event: NIS 358.1 million was spent on land, mostly funded by bank loans and Series B bonds. The current conclusion is therefore not that the story weakened, but that it moved into a more expensive proof phase. The next reports need to show collections, deliveries, reasonable contractor margins in the new segment, and progress on the newly acquired land without reopening a large gap between reported activity and cash.

Company Setup

Megido is a residential developer that now operates through three engines: residential development and construction, land investment and betterment, and project execution for its controlling shareholder Aura. This is no longer a small project-by-project business. At the end of March 2026, the company was involved in development, planning and construction of about 2,902 housing units, and refers to an expected pipeline of about 4,044 units when betterment plans and future projects are included.

The company's economic machine combines growth, working capital and financing. A residential developer can report revenue and profit before cash comes in, especially when price-controlled projects, staged payment structures, pre-agreed collection schedules and land purchases precede sales. That is why the previous annual analysis focused not only on the profit surge, but on whether 2026 would begin converting backlog, sales and the execution arm into cash.

The first quarter gives only a partial answer. On the positive side, the company sold 117 apartments, compared with 83 in the parallel quarter, and expanded its project map. On the other side, the same quarter shows that the new engine is still small, total margins are diluted by lower-margin execution activity, and new land consumes capital before it proves sales, construction progress and project surplus.

Sales Grew, but Working Capital Still Runs Ahead of Cash

The revenue line looks strong: NIS 114.0 million in the first quarter, compared with NIS 51.0 million in the parallel quarter. Apartment and commercial-space sales revenue was NIS 91.6 million, and construction-service revenue reached NIS 22.3 million. Total gross profit rose to NIS 20.4 million, but the gross margin fell to 18% from 23%.

That margin decline is not accounting noise. It shows that growth is coming from two different sources: development activity, which generated NIS 18.8 million of gross profit and a 21% margin in the quarter, and execution activity, which adds volume but at only a 6.7% gross margin. In other words, the company is growing, but every additional revenue shekel is not the same as the old development shekel.

Net profit fell to NIS 14.2 million from NIS 32.8 million in the parallel quarter, mainly because the parallel quarter included an investment-property fair-value gain of NIS 37.5 million, compared with only NIS 9.9 million this quarter. Net profit alone is therefore the wrong test for the quarter. The more important question is whether operating activity is starting to release cash, and the answer is still negative.

The sales-terms analysis already identified this gap at the end of 2025. In the first quarter it did not close. It widened. Operating cash flow before land purchases was negative NIS 55.4 million, compared with negative NIS 10.4 million in the parallel quarter. After land purchases, operating cash flow was negative NIS 413.4 million.

All-in cash flexibility after the quarter's actual cash uses looks like this: cash flow before land purchases was negative, land purchases sharply increased cash use, and financing activity balanced the picture. This is not a liquidity-crisis signal, because the company ended the quarter with NIS 80.6 million in cash and another NIS 69.6 million in restricted deposits and cash in project-loan accounts. But it does mean that growth in the quarter was externally funded before it proved strong internal collection.

The Aura Execution Arm Started, With Low Early Margins

The first quarter is the first time that the execution segment for the parent company appears as a reporting segment. That matters because the execution-arm analysis framed the open question: will the agreements with Aura become a recurring profit engine, or another layer of related-party dependence?

The first numbers are still small. The execution segment for Aura recognized NIS 7.3 million of revenue and NIS 422 thousand of segment profit in the quarter. In the full income statement, construction-service revenue was NIS 22.3 million because it also includes execution work that is outside the parent-company execution segment, such as work for Diurim. Total gross profit from execution activity was NIS 1.5 million, a 6.7% margin.

The backlog with Aura is much more meaningful than revenue already recognized. The company reports an order backlog of NIS 921.0 million in the parent-company execution segment, with NIS 258.5 million expected to be recognized in 2026, NIS 269.3 million in 2027, NIS 269.3 million in 2028 and NIS 123.9 million in 2029. That gives visibility, but also defines the proof points: timetable execution, gross margin, and whether work for the controlling shareholder remains profitable enough to justify the dependence.

The gap between headline backlog and what is already in the financial statements is still large. LINK Yehud carries expected revenue of NIS 457.0 million, but only NIS 5.9 million had been recognized by the end of March and the completion rate was 1.3%. Migdaley Haktsinim in Lod carries expected revenue of NIS 364.6 million, of which only NIS 1.4 million had been recognized. Moradot Afula carries expected revenue of NIS 129.0 million, but construction began only in April. If 2026 meets the expected recognition schedule and keeps margins around 7% to 9%, the segment can add a more stable income layer. If margins erode or progress slows, the volume will look more like low-profit expansion than an independent value engine.

New Land Bought the Future, the Conclusion Is Still About Cash

The quarter's largest move is not only the 117 apartments sold, but the completion of three land purchases: Kfar Saba, Beit Dagan and Beer Yaakov. Land inventory and advances for land purchases jumped to NIS 392.4 million from NIS 33.4 million at the end of 2025. This is a material change in the asset base, and it explains why cash flow looked so heavy in the quarter.

Funding came from two main sources. On January 13, 2026, the company completed a Series B bond issue with net proceeds of NIS 151.6 million, carrying a fixed 5.17% interest rate and no linkage. At the same time, it took long-term bank loans to fund the land purchases: about NIS 102.2 million for Kfar Saba, due in January 2028, about NIS 69.1 million for Beit Dagan, due in February 2028, and about NIS 120.8 million for Beer Yaakov, due in December 2028.

The positive side is clear: the company bought future operating volume. Kfar Saba, Beit Dagan and Beer Yaakov together include 449 housing units, a significant portion of them in price-controlled tracks. In parallel, a new city plan was approved in Kiryat Ekron, increasing that project to 483 housing units and about 1,200 square meters of commercial space. The company also reports 868 units in projects expected to become available for marketing or construction over the coming year, with expected gross profit of NIS 301.3 million.

The other side of the same move matters just as much. Consolidated equity is NIS 509.9 million, and the company is in compliance with the financial covenants of its bond series. Net financial debt to net CAP stands at 64.8% for Series A and 63.0% for Series B, against distribution thresholds of 80% and 77.5%, respectively. That is a reasonable cushion, but it depends on the new land moving into marketing, construction and collection before late-2027 and 2028 repayments become the market's focus.

There is also an accounting profit point that needs to be put in the right place. The Arad land was valued at NIS 133.5 million, and the company recorded a NIS 9.9 million fair-value gain in the quarter. The key valuation assumption is approval of additional rights for about 782 housing units and 5,000 square meters of commercial space within about a year and a half, subject to betterment levies, development levies, public obligations and basement construction. This asset can continue to support reported value, but it does not replace project collections and is not an immediately accessible cash source.

Megido's first quarter is a real progress quarter, but not one that closes the discussion. The company is selling more, recognizing more revenue, starting to show the execution arm for Aura, and holding a much broader land and project pipeline. At the same time, the gap between accounting recognition and collection is still growing, and land expansion was bought with debt and financing cash flow.

The current conclusion is that Megido's business visibility improved, but the cash proof is still ahead. The positive scenario is that 2026 starts releasing cash from existing projects, backlog with Aura turns into revenue at a reasonable pace and at contractor margins of 7% to 9%, and the new land moves into marketing without adding another layer of working-capital pressure. The counter-thesis is that the company expanded the balance sheet before proving the collection pace, so the market will keep looking first at cash flow, contract assets and debt, and only then at the number of apartments sold.

Over the next few quarters, four data points matter most: whether customers and contract assets stop growing faster than contract liabilities, whether operating cash flow before land purchases turns positive again, whether the execution segment for Aura recognizes revenue close to the 2026 backlog without margin erosion, and whether the new land receives permits and starts marketing at a pace that justifies the loans used to fund it. If the first three move together, the first quarter will look like the start of a proof year. If not, growth will remain larger in the financial statements than in cash.