BlackEdge in the First Quarter: Repayments Lift Cash, but Margin and the Watchlist Still Weigh

BlackEdge did not report a quarter that proves recovery. It reported a quarter that gives it more time to prove one. Cash rose sharply to NIS 98 million and the credit portfolio fell 11% from the end of 2025, but that improvement came mainly from repayments and portfolio contraction, not from a renewed expansion in margin. Net financing income fell to NIS 12.9 million, and net profit dropped to NIS 2.1 million, while expected credit loss expenses rose to NIS 3.7 million. On the positive side, visible arrears eased compared with year-end 2025, funding lines are broader, and the post-balance-sheet rate cut can help the cost of funds. The part that still weighs is that Stage 2 and refinanced debt grew even after the total portfolio declined, while the company is relying more on longer-duration real-estate transactions and fair-value loans with kicker components. For now, 2026 looks like a transition year in practice: less immediate liquidity pressure, but still no proof that cheaper funding is flowing back to earnings without raising credit risk.

Company Profile

BlackEdge, formerly Michman Finance, is a non-bank business credit company. Its economic engine looks simple: raise funding, extend credit to businesses and real-estate developers, and keep the spread between portfolio yield and funding cost after credit losses and operating expenses. In practice, the first quarter shows that this engine is changing: less short-duration negotiable-instrument activity, more real-estate-backed credit, more longer-duration transactions, and more future income that depends on project execution.

The company describes four strategic business lines: equity financing for real-estate developers, private banking and corporate credit, construction accompaniment, and mortgages. The first two are the main active lines today. Closed construction financing and mortgages are still in development, infrastructure build-out, and licensing where required, so they cannot yet carry the thesis. This matters because a surface read of broader funding lines and AI/data language may suggest an expanding financial group. The quarter's numbers say something more cautious: the company is building a broader platform, but current profitability still depends on core credit and collection quality.

Real-estate exposure also needs a precise read. By sector mix, real estate is 76.23% of gross customer credit. In the business description, real-estate-backed loans are 61.90% of the credit portfolio. In the general note to the financial statements, real-estate-backed loans are 47.7% of the group's credit portfolio. These are not necessarily contradictions. They are different cuts: customer sector, collateral type, and loan structure. The implication is that there is no single percentage that captures the risk. The right questions are how much of the exposure is first-lien, how much sits in surplus pledges or subordinated debt, and how much of the income depends on project progress.

The Funding Relief Has Not Reached the Margin Yet

The central number in the quarter is not only the decline in net profit, but where that decline came from. Financing income fell 4.3% to NIS 27.4 million, while financing expenses rose 13.0% to NIS 14.5 million. Net financing income therefore fell 18.4% to NIS 12.9 million, before credit-loss expenses.

That decline matters because of the starting point from the end of 2025. The conclusion from the previous analysis was that the company had already improved the funding side through a higher rating and wider credit lines, but had not yet shown that this improvement was returning to margin. The first quarter does not close that gap. Adjusted net financing income, which excludes financing expenses outside core activity, fell to NIS 13.5 million, compared with NIS 19.1 million in the fourth quarter of 2025 and NIS 15.8 million in the parallel quarter.

There is a counterpoint. The post-balance-sheet Bank of Israel rate cut to 3.75%, and a prime rate of 5.25%, should help the company more on the funding side than on the existing credit book, because most of the credit portfolio is not linked to the Bank of Israel rate while part of the funding is variable-rate. The company's sensitivity to a 1% change in prime shows an impact of about NIS 3.45 million through bank and institutional variable-rate credit. But the effect is not immediate. The company itself says portfolio repricing is gradual and tied to duration, so the coming quarters need to show whether the saving remains with the company or passes to customers through more competitive pricing.

What makes this quarter more than just a weak quarter is the composition of income. Of total financing income, NIS 7.1 million came from fair-value loans. The balance of these loans rose to NIS 134.8 million, after NIS 46.0 million of new loans, NIS 35.8 million of repayments, and NIS 7.1 million of fair-value income. These are transactions with kicker components that depend, among other things, on future borrower performance, and their duration is 2 to 4 years. In other words, part of the result is no longer only a current credit coupon. It relies more on valuation and project progress, which means it has to be assessed together with portfolio quality rather than only against the revenue line.

The Watchlist Looks Better Only if Arrears Are the Whole Story

Visible arrears improved, and that is positive. Gross debts not repaid on their original contractual date fell to NIS 34.5 million, after year-end 2025 arrears stood at about NIS 72.6 million. Stage 3 also barely moved: NIS 29.0 million gross, compared with NIS 29.4 million at the end of 2025. That is progress relative to the starting point of the year.

But it is not enough to say that credit quality has already moved past the pressure of 2025. Stage 2, including refinanced debt, rose to NIS 47.1 million, compared with NIS 44.4 million at the end of 2025 and NIS 15.8 million in the parallel quarter. Refinanced debt rose to NIS 29.6 million, compared with NIS 23.7 million at the end of 2025. At the same time, the net credit portfolio fell to NIS 856.0 million. In other words, the portfolio shrank, but the part that requires monitoring did not shrink with it.

Expected credit-loss expense was NIS 3.7 million in the quarter, compared with NIS 0.7 million in the parallel quarter. The allowance movement included NIS 3.9 million of newly recognized Stage 3 debts, partly offset by NIS 1.25 million of write-offs. Stage 3 coverage rose to 29.51%, compared with 20.1% at the end of 2025. This is not a sign of portfolio collapse, but it does mean the quarter did not only clean up arrears. It also raised the price of risk already recognized.

Cash Improved Because of Repayments, Not Stronger Profitability

Liquidity looked better at quarter-end. Cash rose to NIS 98.0 million, compared with NIS 38.5 million at the end of 2025. The company has NIS 826.6 million of committed credit lines, of which NIS 658.0 million was actually utilized, and another NIS 330.0 million of non-committed lines, of which NIS 120.1 million was utilized. Against bond covenants, the equity-to-balance-sheet ratio stood at 24.9% versus a 17% threshold, and equity stood at NIS 217.7 million versus much lower minimum thresholds.

But liquidity has to be separated from profit generation. All-in cash flexibility improved during the quarter: operating cash flow of NIS 56.2 million, positive investing cash flow of NIS 19.5 million, and negative financing cash flow of NIS 16.2 million led to a NIS 59.5 million increase in cash. But operating cash flow relied mainly on a NIS 105.0 million decline in customer credit, not on a wider operating profit base. That is cash from repayments and portfolio management, not proof that the existing business is producing a higher spread.

Capital allocation also sends two signals. The company bought back NIS 2.0 million of treasury shares during the quarter, and after the balance-sheet date the board approved a self-purchase plan for Series D and Series E bonds of up to NIS 5 million for each series. These moves can use liquidity and improve the debt structure if executed at the right price, but they do not replace margin recovery. During the same period, shareholders approved the grant of 94,814 restricted share units to the CEO and controlling shareholder, vesting subject to an average company value of at least NIS 1.705 billion in the third or fourth year. That target is far from the current market value, so it is more an ambitious signal than an immediate dilution event.

Conclusion

The first quarter of BlackEdge improves liquidity, but not the central economic proof. The company received repayments, increased cash, broadened funding sources, and kept comfortable covenant room. At the same time, net income from financing declined, credit-loss expenses rose, and a larger part of the story moved to longer-duration transactions with future income and fair-value measurement.

The current conclusion is that in 2026 the company has received time, not confirmation. For the read to improve over the next two to four quarters, three things need to happen: net financing income needs to return to growth without a parallel rise in provisions, Stage 2 and refinanced debt need to decline in practice, and future income from real-estate transactions needs to become profit and cash rather than only fair value. The strongest counter-thesis is that the first quarter is simply timing: large repayments reduced the portfolio and profit, and lower rates will start working in the company's favor faster in the next quarters. The evidence is not there yet. The market is likely to focus less on the cash balance and more on whether the second quarter shows that this cash is the start of margin recovery, or only a stopover after unusual repayments.