Eldan Transportation in the First Quarter: Depreciation Cushions Profit While Collateral Still Sets the Pace

Eldan Transportation did not report a weak quarter in the simple sense: revenue increased, the fleet expanded, utilization stayed stable, and operating cash flow was less negative than in the comparable quarter. But the first quarter of 2026 does not close the two questions left open after 2025. It sharpens them. The first is earnings quality: net profit declined only to NIS 27.2 million, but the depreciation-rate update added about NIS 6.2 million to net profit while gross profit from vehicle sales fell by about NIS 5.8 million. The second is funding flexibility: the cash balance rose mainly because of the February bond expansions, not because the business generated cash, and several secured-series LTV ratios moved back close to their contractual ceilings near the report date. This quarter does not point to an immediate liquidity problem, but it also does not prove that the pressure has passed. It shows a company where leasing demand still works, while disposal margins, depreciation assumptions, and collateral still determine how the market will read 2026.

More Rental Days, Less Profit Per Vehicle Exit

The business is a financed vehicle-fleet machine. It buys vehicles, funds them with debt, leases or rents them, and then sells the vehicles at the end of the cycle. Higher revenue is therefore not enough. The real questions are whether the fleet is filled, whether end-of-cycle disposal remains profitable, and whether debt and collateral allow the model to keep rolling.

First-quarter consolidated revenue increased to NIS 406.9 million from NIS 396.5 million in the comparable quarter. The average total fleet rose 9.7% to 33.2 thousand vehicles, the average active fleet rose 10.0% to 28.1 thousand vehicles, and average utilization was almost unchanged at 84.4% versus 84.2%. That is the part that is working: the company is holding a larger fleet without a utilization decline.

But rental revenue in the vehicle activities rose by NIS 21.4 million mainly because of more rental days, not a higher average return per vehicle. In leasing, the number of rental days contributed NIS 25.7 million to revenue, while the average consideration per vehicle offset NIS 5.8 million. At the same time, vehicle-sale revenue fell by NIS 11.1 million to NIS 107.3 million. That decline matters more than the topline increase because it hits the profit left when the vehicle exits the fleet.

Gross profit from vehicle sales, calculated as sale revenue less the depreciated cost of vehicles sold, fell from about NIS 26.1 million in the comparable quarter to about NIS 20.3 million. The gross margin on vehicle sales fell from about 22.0% to about 18.9%. The pressure was not only in the zero-kilometer activity, where both revenue and cost nearly disappeared. It also appeared in vehicles that had served leasing or rental activity: sale revenue for those vehicles declined slightly while their depreciated cost increased. That is the clearest sign that the company has not yet shown a clean recovery in the fleet's economic residual value.

This follows directly from the previous annual analysis, where the open question was whether 2026 would show strong demand together with more convincing profit and cash. The first quarter gives only a partial answer: demand is holding, but earnings quality is not yet clean enough to say that the improvement came from the business itself.

The Depreciation Update Matters More Than the Headline Net Profit

Net profit fell from NIS 29.1 million to NIS 27.2 million, a decline of about 6.7%. That can look like modest erosion, especially when revenue and fleet size are increasing. But the depreciation note changes the read of the quarter.

The company updated depreciation rates from January 1, 2026. The weighted average accounting depreciation rate during the reporting period was 12.7%, and the change increased quarterly net profit by about NIS 6.2 million after tax. The company also estimates that the update will add another NIS 13.8 million to net profit from April through December 2026.

The implication is straightforward: reported profit already includes material accounting support. Without the stated contribution from the depreciation update, and with all else unchanged, net profit would have been around NIS 21.0 million, about 28% below the comparable quarter. That does not mean the estimate is wrong. The company states that no impairment indicators existed for the vehicle fleet at quarter end. But when actual vehicle-sale profit is weakening, slower depreciation deserves closer scrutiny.

This is the gap that matters. In a leasing company, profit is created both during the contract and when the vehicle is sold. If disposal profit declines while lower accounting depreciation softens the bottom line, the reader needs to ask not only how much the company earned, but where the profit came from. In the first quarter, the answer is not fully negative because the core activity still works and rental revenue grew. Still, the economic recovery in residual value has not yet been proven.

Cash Increased Because of Debt Issuance, and Collateral Moved Back Near the Ceiling

Liquidity looked better at quarter end, but the source of improvement matters. Cash and cash equivalents were NIS 494.8 million at the end of March, up from NIS 297.0 million at the end of 2025. That increase did not come from positive operating cash flow: operating activities consumed NIS 77.0 million, even if that was less negative than the NIS 95.3 million consumed in the comparable quarter.

On an all-in cash flexibility basis, before financing activity, the company still had a negative cash movement of about NIS 106.4 million, consisting of NIS 77.0 million negative operating cash flow and NIS 29.4 million used in investing activity, including restricted-deposit movement. Financing activity generated NIS 304.2 million, mainly from NIS 476.4 million of net bond issuance against repayments of bonds, bank loans, non-bank loans, and leases.

This is not fully abnormal for the sector. A leasing company that grows its fleet records vehicle purchases in operating cash flow, and its working capital looks weaker because vehicles are reported as non-current assets while part of the debt is current. The company also explains that this structure drives the working-capital deficit, which fell to NIS 364.3 million from NIS 494.7 million at the end of 2025. Reading the deficit alone as a distress signal would therefore be too crude.

The more important point is that 2026 still depends on debt-market access and collateral. Near the date of approval of the statements, the company had about NIS 403 million of cash and bank balances, NIS 160 million of signed unused bank credit lines, excess or unencumbered vehicles worth about NIS 625 million, and unencumbered real estate worth about NIS 369 million. These are real funding sources, not just a general liquidity statement. But they also show that the company still has to fund fleet growth, maturities, and dividends before the operating business itself shows a clear cash surplus.

The two dividends approved around the report, NIS 9.0 million paid in April and another NIS 13.6 million approved at the end of May, are not large relative to equity of NIS 892.1 million. They do matter as a signal: the company is still conveying confidence in its servicing capacity while operating cash flow remains negative and profit includes an accounting contribution from depreciation. The dividend is not the problem, but it adds another reason to test whether the next quarters start producing cash from activity rather than mainly from refinancing.

The Collateral Cushion Improved Only Until Issuance Proceeds Were Released

The collateral layer is where the quarter becomes more interesting than the headline. The company complies with its financial covenants, is far from the equity covenant, and the secured debt rating remains ilA+ with a stable outlook. But in the LTV ratios of secured bonds there is a large difference between the end of March and the level near the report date.

For Series J and Series K, the LTV ratios were only 81.0% and 80.9% at the end of March, far from the 98% ceiling. Near the report date, after the remaining issuance proceeds held in restricted deposits were released to the company against vehicle collateral, those ratios were already 95.7% and 96.8%. That is not a breach. It does mean that the quarter briefly showed a more comfortable collateral cushion, but part of that cushion was connected to proceeds that had not yet been drawn from the trustee account.

The measurement base also needs caution. The pledged vehicle value used for collateral is based on the Levi Yitzhak price list without several deductions that an economic buyer could require for leasing or rental vehicles, such as mileage, ownership and use by a leasing company, and certain accident or mechanical-condition adjustments depending on the series. A contractual LTV ratio of 96% is therefore not the same as a wide realization cushion in a weaker used-car market. It does provide contractual compliance and financing access, but it does not remove the residual-value question.

This is the natural continuation of the previous collateral and refinancing analysis. February 2026 proved that the market is still willing to fund the company, but the first quarter shows that this proof did not disconnect it from the collateral metric. It bought time, extended debt duration, and increased cash. It did not make vehicle values and collateral marginal to the story.

What Needs to Happen Next

The next quarters need to show three things together, not just one. First, vehicle-sale profit needs to stabilize. If the gross margin on vehicle sales remains around 19%, any improvement in net profit will be tested against the depreciation contribution rather than against better used-car economics. Second, operating cash flow needs to become less negative even after vehicle purchases, without full dependence on an open debt market. Third, the tighter secured series need to maintain better LTV headroom after deposit releases, vehicle substitutions, and changes in disposal prices.

The current read is mixed but clear: the company's commercial activity remains strong enough to support a larger fleet and higher rental revenue, but earnings quality and funding have not yet moved from a transition quarter to a proof quarter. The reasonable counter-thesis is that the market may be too harsh, because leasing demand is holding, utilization is stable, no impairment indicators were found for the fleet, and access to the debt market remains open. For that argument to win, the next reports need to show vehicle-sale profit that stops eroding, operating cash flow that improves without a sharp fleet reduction, and collateral ratios that do not repeatedly move back close to their ceilings. Until then, reported profit alone is not enough.