Dor Alon in the First Quarter: Profit Rose, but Working Capital Still Absorbed Cash

Dor Alon opened 2026 with net profit that looks good, but not with a full answer to the question left open after 2025. Net profit attributable to shareholders rose to NIS 34 million, mainly because net financing expenses fell sharply thanks to the securities portfolio, while the operating business itself looks more mixed. The food segment improved, Kafou Zan is now inside the revenue base, and am:pm still shows same-store growth, but fueling stations and direct marketing were hit by lower quantities and lower sales. The less comfortable part is cash: operating cash flow was only NIS 48 thousand, compared with NIS 133.7 million in the parallel quarter, and the working-capital deficit is still about NIS 269 million even after the Series I bond issue. So this quarter strengthens the read from the previous annual analysis: Dor Alon is already less of a pure fuel company and more of an energy, food and real-estate platform, but the improvement still has to pass through cash generation, longer funding and progress at Aloney Yam.

The Quarter Confirmed Diversification, but Not Full Earnings Quality

Dor Alon now has three clear engines: fueling and commercial complexes, direct marketing of fuel and gas, and food. Alongside them sits a material real-estate layer, mainly Aloney Yam and Aloney Kfar Saba, which provides a balance-sheet anchor but also consumes capital until it turns into income or monetization. This business creates value through retail margins, customer credit, inventory management, debt recycling and asset development, not only through fuel prices.

At the headline level, net sales fell 7% to NIS 1.425 billion, but gross profit rose 6.7% to NIS 288 million. The gross margin rose from about 17.6% to about 20.2%, and reported EBITDA edged up to NIS 120 million. That looks like a quarter in which the company sold less and earned more on each shekel of sales.

That read is too generous. Operating profit fell to NIS 42.7 million from NIS 45.1 million, and adjusted operating profit fell to NIS 25.2 million from NIS 32.9 million. The gap between higher net profit and weaker operations ran through the financing line: net financing expenses fell to only NIS 4.3 million from NIS 21.3 million in the parallel quarter, partly because the securities portfolio appreciated. Net profit is therefore not clean proof of operating improvement.

The segment split tells the quarter better than the bottom line. Fueling and commercial complexes fell to NIS 650 million in sales and NIS 18.7 million in segment profit, a roughly 39% profit decline. The hit came from lower fuel sales and lower convenience-store sales, against the background of restrictions and reduced vehicle traffic during Operation Roaring Lion. Direct marketing also fell to NIS 549 million in sales, mainly because of lower sales to the Palestinian Authority and lower jet-fuel sales, but its segment profit edged up to NIS 17.3 million as lower maintenance and transportation expenses offset part of the volume pressure. The Palestinian Authority receivable stood at about NIS 563 million, and the authority is meeting its obligations in an orderly way, so the risk did not worsen this quarter but the exposure remains large.

Food is the positive side of the quarter. Segment revenue rose to NIS 294 million and segment profit rose to NIS 6.5 million. Kafou Zan contributed about NIS 123 million of sales in the quarter, while am:pm generated about NIS 110 million of sales with roughly 9% same-store growth. This is no longer only a revenue engine. It is beginning to contribute profit, but the starting base is still small relative to the fuel and commercial core.

For investors, the meaning is that diversification is working, but not yet strongly enough. Food strengthens the story of Dor Alon as a broader retail company, but it still does not offset a meaningful decline in fueling-station profit. If the next quarters show food sales continuing to rise and segment profit moving beyond NIS 6.5 million, growth quality will look better. If not, Kafou Zan will look more like added revenue than a profit engine that balances the core.

Series I Bought Time, but Working Capital Still Needs a Solution

The most important improvement this quarter is in the debt structure, not in net profit. In February 2026, Dor Alon raised about NIS 336.8 million gross through Series I bonds and received about NIS 333.6 million net. The series is unlinked, carries a 4.5% coupon, and principal repayments begin only at the end of 2028. That extends the runway and allows part of the short-term credit layer to be replaced.

Short-term credit did in fact decline. Credit, short-term loans and current maturities fell by about NIS 175 million from the end of 2025 to NIS 1.629 billion. The company has signed short-term credit facilities of about NIS 1.1 billion, with utilization of about 40% at quarter-end and about 42% near publication. Covenants are also far from immediate pressure: net financial debt to adjusted EBITDA was 1.64 times versus a 4.8 times ceiling, and the bond-series adjusted equity-to-balance-sheet ratios are above the immediate-repayment thresholds. After the quarter, the company also received a first S&P Maalot issuer rating of ilA with a stable outlook and an ilA+ bond rating, alongside Midroog's A2.il, which supports access to the debt market.

Still, this is not a clean liquidity picture. The working-capital deficit was about NIS 269 million, and the company explains that it mainly reflects short-term loans funding Aloney Yam and the classification of lease maturities under IFRS 16. All-in cash flexibility after the quarter's actual cash uses remains weak: operating cash flow of NIS 48 thousand covered almost nothing, while the company invested NIS 20.3 million in fixed assets, NIS 41.6 million in investment property, paid NIS 45.6 million of lease principal and another NIS 40.5 million of cash interest including lease interest. The settlement around the Alon and Alonit brands, if approved, also adds a controlling-shareholder payment layer: NIS 3.6 million per year for 2017 through 2025 and NIS 4.2 million per year for 2026 through 2030. Series I closed the quarter. The business did not.

Aloney Yam Still Sets the Pace of Cash Release

The real-estate layer received another balance-sheet boost this quarter, but not a full interpretive shift. Investment property rose to NIS 1.715 billion, mainly because about NIS 41 million of additional investments accumulated at Aloney Yam. The appraiser's letter for the project says there was no material change in the property's value versus the end of 2025, and at the same time describes a project approaching completion of Phase A, with a marketing policy already formed and negotiations with potential interested parties, but no lease terms agreed by the valuation date.

That changes how the company's real estate should be read. Aloney Yam is a large balance-sheet anchor, but at this stage it is still not an independent cash source. Appeals against the betterment levy and Israel Land Authority capitalization-fee demands are still pending, and the pessimistic alternative in the authority demands is higher than the forecasts embedded in the previous appraisal, even though the appraiser does not expect a material change in value. The asset therefore continues to play two roles at once: it supports the balance sheet, but it also explains part of the working-capital deficit and the need for short-term funding.

After the quarter, management also decided to reclassify a relative part of Aloney Kfar Saba from investment property to fixed assets because the company intends to use part of the property as its offices after fit-out and occupancy. That is not negative by itself, but it is a reminder that not every real-estate asset on the balance sheet is designed for external value realization. Some assets serve operations, and some still have to pass through construction, marketing, financing and occupancy before they ease the balance sheet.

What Will Decide the Next Read

Dor Alon's first quarter leans positive only if it is read as a funded transition year, not as proof that the balance sheet has already been released. Food is beginning to show a more real profit contribution, Series I extends the maturity schedule, and covenants leave room. On the other hand, adjusted operations weakened, operating cash flow almost disappeared, and real estate still needs funding before it releases cash.

The rest of 2026 will be decided by three points. First, fueling stations and convenience stores need to return to a higher profit run rate after a weak quarter. Second, food, especially Kafou Zan and am:pm, needs to keep improving segment profit, not only revenue. Third, Aloney Yam needs to progress toward marketing, occupancy or longer-term funding that reduces the need for short-term credit. If those three move together, the first quarter will look like a reasonable financing bridge. If cash flow stays weak after the debt raise, the market will return to funding pressure rather than business diversification.