Issta in the First Quarter: Tourism Supplier Advances Consumed Cash Before Orders Recovered

Issta opened 2026 with a quarter in which the security event explained the hit to tourism, but not the full economic story. Net profit fell to NIS 14.5 million, and the tourism segment moved to a NIS 10.7 million loss after Ben Gurion Airport was closed for 40 days. At the same time, operating cash flow was negative NIS 113.3 million, mainly because of about NIS 160 million of advances to tourism suppliers, of which about NIS 98 million were long term advances under the Israir Group transaction. Against that outflow stands a tourism backlog of NIS 142.9 million, materially higher than NIS 105.3 million at the end of 2025, together with company disclosure that May sales were above the comparable period. The quarter is therefore neither just "weak" nor simply "recovering": the center of gravity moves to how much of the cash advanced to suppliers returns as margin and customer collection in the next quarters. Real estate softened the income statement through Timorim V, additional Publica consideration, and progress at Sela Issta, but it does not replace the main 2026 proof point: tourism that restores margin after early supplier payments, and real estate that moves from financing to accessible value.

Tourism and Real Estate Made the Quarter Hard to Read Through Net Profit

Issta is now a hybrid company: a tourism arm with brands, wholesale activity, distribution channels, and content products, alongside a property arm that holds hotels, logistics, residential development, and neighborhood commercial centers. That structure helps when tourism is temporarily hit and real estate creates value or accounting profit. It also creates an interpretation problem: consolidated profit mixes a cash-consuming tourism quarter, real-estate fair value, equity-method companies, and disposals.

First-quarter tourism sales and service revenue fell to NIS 34.7 million from NIS 49.1 million in the comparable quarter, and tourism commission revenue fell to NIS 19.7 million from NIS 28.9 million. On the segment basis, which presents activity on a broader basis, tourism segment revenue fell to NIS 115.2 million and the segment posted a NIS 10.7 million loss, compared with NIS 1.1 million profit in the comparable period. The closure of Israeli airspace from February 28 to April 9, 2026 explains the operating break in the quarter.

The forward read is less negative. Tourism backlog as of March 31, 2026 was NIS 142.9 million, compared with NIS 105.3 million at the end of 2025. The second quarter alone includes NIS 80.6 million of backlog, of which NIS 59.0 million is sales and services and NIS 21.6 million is commissions. The company also says May sales were higher than the comparable period. This signals demand was deferred more than destroyed, but backlog alone does not prove earnings quality.

This is where prior coverage becomes relevant. The follow-up analysis on the Israir seat deal framed the move from commission and distribution toward a model in which Issta advances more cash to secure access to inventory. In the first quarter, that move already appeared in cash flow. Inventory control can improve margin, but it shifts part of the risk to time and the balance sheet.

Supplier Advances Explain the Gap Between Profit and Cash

The sharp gap this quarter is between positive net profit and cash leaving the business. Operating cash flow was negative NIS 113.3 million, compared with negative NIS 29.2 million in the comparable quarter. The main explanation is advances to tourism suppliers of about NIS 160 million, of which about NIS 98 million are long term under the Israir Group transaction. On the balance sheet, this appears as NIS 164.1 million of current supplier advances and another NIS 98.1 million of long-term supplier advances.

The implication matters: the quarter's issue is not slow customer collection. Trade receivables and accrued income fell to NIS 146.3 million from NIS 193.5 million at the end of 2025. The cash went to suppliers to secure tourism product, so the right cash frame is all-in cash flexibility after actual cash uses, not accounting profit and not a normalized cash-flow bridge.

Capital allocation sharpens the pressure. In a quarter in which operations consumed cash, Issta paid a NIS 34.8 million dividend and repurchased NIS 25.6 million of shares, then repurchased another roughly NIS 7 million in April. Each action can make sense on its own. Together, they leave the rest of the year more dependent on backlog conversion into cash and repayments from the real-estate layers.

Real Estate Softened the Quarter Without Solving the Funding Load

Real estate supported the income statement. Fair-value gains on investment property totaled NIS 12.3 million, mainly after new lease agreements at Timorim V. Other income of NIS 15.1 million included the sale of an asset used by the parent company, additional consideration from the Publica hotel of about NIS 7 million, and state grants of about NIS 4.5 million. These items explain why operating profit rose to NIS 21.9 million despite the tourism hit.

The financing side remains more important than the fair-value gain. In Bnei Darom, Issta Properties won a logistics site for about NIS 134.5 million plus about NIS 8.8 million of development costs, and in May signed NIS 113 million of bank financing plus a NIS 25.6 million VAT bridge facility at prime-rate interest. At Timorim V, a lease was signed for about 33% of the built area, and in April-May completion certificates were received for Timorim V, Be'er Tuvia, and Arnona. These are business advances, but they still need to become rent, NOI, or project surplus.

Sela Issta adds another layer to the same conclusion. Revenue from apartment sales and construction work fell to NIS 26.2 million and gross profit fell to NIS 3.3 million, compared with NIS 13.2 million in the comparable quarter. At the same time, Havatzelet Hasharon secured financing: a credit facility of up to NIS 185 million, execution guarantees of up to about NIS 3.7 million, and Sale Law policy capacity of up to NIS 508 million. By quarter-end, NIS 143.3 million had been drawn. This is progress against the prior Sela Issta analysis, because project financing replaces part of the long wait on land, but project surplus has not yet arrived.

The purchase-tax event is the clearest upside point in the Sela layer. If the purchase-tax ruling stands and the procedural arrangement is implemented, Sela Issta expects purchase-tax refunds of about NIS 55 million, pre-tax profit of about NIS 26 million on projects already recorded in profit and loss, and an improvement of about NIS 29 million in estimated profitability on projects not yet recorded. The company is also working to include two additional projects with an expected impact of about NIS 15 million. In the first quarter, none of that impact had been recognized, so it remains a future trigger rather than a funding source that has already solved the balance-sheet load.

The debt structure does not look broken. The working-capital deficit widened to NIS 725.4 million, with about NIS 655 million of short-term credit funding real estate under development. That is relatively normal for a development and property platform, and the company remains compliant with bond covenants, with defined equity of about NIS 1.76 billion and an equity-to-balance-sheet ratio of about 41%. The risk sits in timing: financed real estate and tourism that prepays suppliers require the next quarters to return cash at a reasonable pace.

Conclusion

Issta's first quarter gives a mixed read with a clear direction. The tourism hit looks mostly temporary, because backlog increased and May sales were already above the comparable period. The quality of the recovery has not yet been proven: supplier advances made tourism more capital-intensive before margin reaches the income statement and cash flow. Real estate provides an earnings and value layer, but much of it sits in fair value, project financing, expected tax refunds, and repayments that still need to move up the chain.

At this stage, the read is cautiously positive only if 2026 is treated as a proof year for the combined model. The second and third quarters need to show backlog turning into revenue, commissions, and margin without another similar jump in supplier advances. Sela Issta needs to move Havatzelet Hasharon, Arnona, and the purchase-tax arrangement into recognized profit, loan repayments, or project surplus. The counter-thesis remains central: the company may be using its balance sheet to keep activity high before tourism and real estate return enough cash. The market read improves when advances start rolling into revenue and collection, and when the real-estate layer adds accessible cash rather than only accounting value.