Brand in the First Quarter: Backlog Is Rising, but Neton Raises the Cash Requirement

Brand opened 2026 as a different company from the one investors knew before the Neton acquisition: consolidated revenue jumped to NIS 348.1 million, but that increase mainly reflects the consolidation of a new activity, not clean improvement in the legacy business. On the adjusted comparison base, which assumes Neton had been consolidated from the beginning of 2023, revenue was almost flat, gross profit fell, EBITDA declined from NIS 20.6 million to NIS 12.6 million, and net profit became a loss. At the same time, the infrastructure segment is showing a first real sign of recovery: its backlog rose to about NIS 369 million near the report date, compared with about NIS 131 million a year earlier, and the first quarter already looks materially better than the weak fourth quarter of 2025. Still, the company has not bought itself full comfort. Cash flow in the quarter was positive mainly because of working-capital release and proceeds from a property disposal, debt was issued after the balance-sheet date, and the company also exercised the option to acquire the remaining 40% of Neton for NIS 64 million. The current read is mixed but clear: the business direction improved, mainly through infrastructure backlog and Neton, but shareholder value now depends on turning backlog into profitability and preserving enough financing room until the new deal starts to justify its cash requirement.

Company Overview

Brand is no longer only a steel infrastructure company. It now has four operating engines: infrastructure, engineering, software and control, and IFM services through Neton. Above those sits a smaller renewable-energy development layer in Europe, accounted for under the equity method and not reported as a segment in this quarter because it does not yet generate material segment revenue or profit/loss.

This kind of economic machine needs three things to work: backlog that enters execution, gross margin that does not erode in projects, and cash flow that can fund working capital, leases, and debt. In the first quarter it had backlog and scale, but it still did not fully prove that this scale releases enough profit and cash to shareholders.

The new activity map shows why looking only at revenue is misleading. Neton immediately became the group’s largest revenue segment, but its quarterly EBITDA is close to the engineering segment’s EBITDA, and is not enough by itself to offset all the pressure in infrastructure and software/control.

The company traded at about NIS 180 million market value at the last trading close before the report, based on a NIS 2.93 share price and about 60.7 million shares. That value can draw attention against a backlog of more than NIS 3 billion, but the comparison is incomplete. Backlog is presented on a 100% basis for the companies in the four segments, part of it includes customer cancellation rights without material compensation, and Neton carries a large backlog whose profitability still needs to show up at group level.

Neton Adds Revenue, Not Yet Earnings Quality

First-quarter revenue rose 64% to NIS 348.1 million, but this is not clean organic growth. Neton was consolidated only from late 2025, so the reported comparison with the parallel quarter says little about what happened to the group’s economics. On the adjusted comparison base, which assumes Neton had been consolidated from the beginning of 2023, revenue slipped slightly from NIS 349.6 million to NIS 348.1 million.

The more important gap sits below the top line. Gross profit on the adjusted comparison base fell from NIS 39.8 million to NIS 35.0 million, operating profit declined from NIS 11.7 million to NIS 5.8 million, and EBITDA fell from NIS 20.6 million to NIS 12.6 million. The bottom line moved from a NIS 2.8 million net profit to a NIS 4.5 million net loss. Neton makes the group larger, but the first quarter still does not prove that the new structure improves earnings quality.

Neton itself is more nuanced. IFM services revenue rose to NIS 163.2 million, compared with NIS 137.8 million on the adjusted comparison base, partly because of sector and economy-wide minimum-wage updates to which some agreements are linked, and partly because of more active contracts. But gross profit slipped to NIS 18.0 million and EBITDA fell to NIS 6.0 million, partly because security and cleaning activities were interrupted during March. That does not make Neton a weak deal, but it does mean the first quarter mainly proves volume, not margin improvement.

The shareholder consequence became sharper after the balance-sheet date. On May 26, 2026, Neton IFM notified the sellers that it was exercising the option to acquire the remaining 40% of the Neton companies for NIS 64 million, subject to adjustments, with completion expected within 90 business days from the exercise notice. After completion, Neton will be wholly owned by the group. That improves future profit access for Brand shareholders, but it also raises the cash requirement exactly when adjusted profitability has not yet recovered to the parallel-quarter level.

Infrastructure Backlog Is Back, Profitability Still Has to Catch Up

Infrastructure provides both a real positive signal and a clear warning flag. Quarterly revenue fell to NIS 42.5 million from NIS 53.6 million in the parallel quarter, and gross profit declined to NIS 3.1 million from NIS 6.6 million. But the more useful comparison is against the fourth quarter of 2025: segment revenue rose from about NIS 30.7 million, a gross loss of about NIS 12.2 million turned into gross profit, and EBITDA improved from negative NIS 16.6 million to negative NIS 0.7 million.

The company is presenting two levers here. The first is backlog recovery, with about NIS 369 million near the report date, more than 2.8 times the roughly NIS 131 million near the first-quarter 2025 report. The second is an operational change: agreements with factories in China as an alternative production source that should improve competitiveness, and the sale and leaseback of the Yeruham property. The Yeruham sale was completed after the balance-sheet date and generated about NIS 41 million in cash flow after selling expenses and tax, with an expected capital gain of about NIS 6 million in the second quarter.

Backlog is still not profit. A material part of backlog includes customer cancellation rights without material compensation, even though the company expects cancellations to be negligible. In addition, the first NIS 130 million work order received on April 28, 2026 is expected to be performed by the first quarter of 2030, with about half of the amount paid as a fixed monthly payment over 37 months and about half tied to execution milestones. Those terms are better than backlog that relies entirely on milestones, but they also mean the profit and cash improvement should not arrive all at once.

The next check is straightforward: if the new backlog enters execution without margin erosion and without an unusual working-capital build, infrastructure can move from a drag to an earnings engine. If alternative production, new work, or advances are not enough, backlog will remain an impressive number on paper while the company continues to fund the period between orders and execution.

Cash Improved, but Debt Still Sets the Pace

Operating cash flow was NIS 25.2 million in the quarter, compared with negative NIS 15.4 million in the parallel quarter. That improvement matters, but it needs to be framed correctly. It came mainly from a decline in customers and contract assets, meaning working-capital release, not only stronger recurring profitability.

The following calculation looks at all-in cash flexibility after the quarter’s actual cash movements: operating cash flow, investing activity, repayments, leases, distributions, and financing movements. It is not an estimate of maintenance cash generation from the existing business.

Cash flexibility improved in the quarter, but it also relied on NIS 14.8 million of proceeds from selling fixed assets and on working-capital release. Financing activity consumed NIS 18.2 million, mainly through long-term loan repayments, leases, and distributions to non-controlling interests and PUT option holders, offset by higher short-term credit. After the balance-sheet date, the company also issued Series C bonds with NIS 60 million par value, NIS 59.3 million net proceeds, and an effective interest rate of 6.65%.

Gross financial debt stood at about NIS 352 million at the end of March, of which about NIS 289 million carried shekel prime-linked interest. Bond covenants look relatively comfortable: net financial debt to CAP stood at 49.14% against a 75% ceiling, and consolidated equity was NIS 218.9 million against a NIS 166 million minimum. The bank layer is less relaxed. Against Bank B, tangible equity stood at NIS 115.23 million versus an adjusted NIS 115 million threshold, under waivers and relief granted for specific testing dates. That is a very narrow margin, even though the company meets the adjusted covenants.

The second quarter will already include several movements that were not in the first-quarter income statement: completion of the Yeruham property sale, the Series C bond issuance, progress on the first NIS 130 million work order, and exercise of the Neton option. 2026 is therefore not a clean growth year, but a proof year. Infrastructure needs to move from negative or near-zero EBITDA to stable profitability, Neton needs to show that higher revenue also reaches gross profit and EBITDA, and the company needs to remain above covenants without relying on temporary relief.

Brand exited the first quarter with a much larger infrastructure backlog and a substantial services segment through Neton. That is enough to change the operating story, but not enough by itself to change earnings quality. The strongest counter-thesis is that the company bought time and scale, but has not yet proven that the new business produces enough return on the capital and cash allocated to it. If backlog improvement gets stuck in working capital, Neton margins remain under pressure, or the banks require further adjustments, higher revenue will look mainly like a larger company with the same financing bottleneck.