Afcon Holdings published its second-quarter report. The interesting line in it is not the profit but what was not taken out of it.
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The Quarter
| NIS millions | The quarter | Share of revenue |
|---|---|---|
| Revenue | 464.0 | |
| Gross profit | 85.1 | 18.3% |
| Operating profit | 41.4 | 8.9% |
| Pre-tax profit | 34.6 | 7.4% |
| Net profit | 26.2 | 5.6% |
| Attributable to shareholders | 23.9 | |
| Non-controlling interests | 2.3 | |
| Basic earnings per share | NIS 4.00 | |
| Balance sheet total | 2,080.8 | |
| Shareholders' equity | 709.5 |
The Figure That Sets the Report Apart
From NIS 41.4 million of operating profit, NIS 34.6 million was left before tax. Only NIS 6.8 million was taken out.
That is 16.5% of operating profit - and the smallest share we saw this week in the Israeli reports.
And the comparison shows how unusual that is.
| Q2 2026 | Financing as a share of operating profit |
|---|---|
| Afcon | 16.5% |
| Big | 39.6% |
| Carasso Motors | 43.6% |
| Mivne | 51.8% |
| Azrieli | 74.3% |
And what that means in practice: Afcon travels from the operating line to the pre-tax line almost intact.
The explanation is in the balance sheet: a leverage ratio of 2.9 to one, on a balance sheet of just NIS 2.08 billion. This is a business that does not lean on heavy debt to generate its revenue.
And this is not merely an accounting nicety. A company that pays little interest absorbs a change in the cost of debt far better than a company where financing already takes three quarters of its operating profit.
The Structure of the Profit
| Gross margin | 18.3% |
| Operating margin | 8.9% |
| Margin survival | about 49% |
About half the gross margin survives to the operating line, and that is a familiar range at services and engineering companies - close to what Matrix and One Technologies showed this week (52% and 54%).
In a business of electromechanical and infrastructure projects, the gross margin is set mainly at the pricing stage of the project - that is, before the work has even begun. The expenses beneath it are head office.
Tax and Allocation
NIS 34.6 million before tax and NIS 26.2 million after - that is, tax of NIS 8.4 million, an effective rate of 24.2%.
Very close to Israel's corporate rate of 23%. A report clean of exceptional items on that line.
And of net profit, NIS 2.3 million was allocated to non-controlling interests - about 8.8% - and NIS 23.9 million to Afcon's shareholders.
The Balance Sheet
| Balance sheet total | NIS 2,080.8 million |
| Shareholders' equity | NIS 709.5 million |
| Leverage ratio | 2.9 to one |
הזווית שלי
דעה אישית של אילן אברמוב - לא ייעוץ ולא המלצה
This report demonstrates something I think is easy to miss: operating profit is not the end.
This week we read companies with far higher operating margins than Afcon - Azrieli showed 48.2% - and at Azrieli financing took 74% of what was left. Afcon, with an operating margin of 8.9%, kept 83.5% of it.
So comparing companies by operating margin alone is misleading. Two companies with exactly the same operating margin can arrive at the pre-tax line with completely different numbers, depending on how much debt sits beneath.
And what I take from this is a simple question worth asking of any report: what share of operating profit actually reaches the pre-tax line. It is one ratio, it takes two seconds to compute, and it separates a business whose profit stays with it from a business whose profit goes to its lenders.
And what I would check at Afcon itself is the backlog - the volume of work not yet performed. At a projects company, a single quarter reports on what finished, not on what exists. The backlog is the number that speaks to the coming quarters, and it is not in the structured filing.
(It is important to stress: this is my personal opinion only, and nothing herein constitutes a recommendation to take any action.)
