Nofar Energy published its second-quarter report. It cleanly demonstrates why a high operating margin does not guarantee profit.
Errors or inaccuracies are possible. Spotted something that looks wrong? Write to me and I will correct it.
The Quarter
| NIS millions | The quarter | Share of revenue |
|---|---|---|
| Revenue | 202.2 | |
| Operating profit | 105.3 | 52.0% |
| Pre-tax loss | -23.0 | |
| Net profit | 16.1 | 8.0% |
| Attributable to shareholders | 16.1 | |
| Basic earnings per share | NIS 0.42 | |
| Balance sheet total | 13,207.7 | |
| Shareholders' equity | 2,737.4 |
The gross profit line does not appear in the structured filing, and is therefore not presented here.
The Journey From 52% to Minus
NIS 105.3 million of operating profit. A loss of NIS 23.0 million before tax.
NIS 128.3 million was taken out - 121.9% of operating profit.
And this is the central figure in the report, because it is greater than 100%.
An operating margin of 52% is an excellent number in any sector. In solar generation it is also expected: the sun costs nothing, so once the facility is built, the running operating cost is low - maintenance, insurance and management.
But the facility itself costs capital. A solar field or a storage system is built with an investment of hundreds of millions and yields for twenty years, and it is funded with long-term debt.
And the interest on that debt falls below the operating line.
Here it is larger than the entire operating profit - and so a model that looks highly profitable on one line arrives at the next as a loss.
And for comparison, from the same week and the same kind of structure:
| Q2 2026 | Operating margin | Financing as a share of it |
|---|---|---|
| Isramco | 69.0% | 53.5% |
| Azrieli | 48.2% | 74.3% |
| Nofar Energy | 52.0% | 121.9% |
Three companies built on a funded asset, and three different points on the same spectrum.
And the Tax That Reversed the Sign
A pre-tax loss of NIS 23.0 million, and net profit of NIS 16.1 million.
That is, the tax line contributed about NIS 39.1 million.
And this is the second case in today's filings where tax turns a loss into a profit - the first being Shikun & Binui, where the reversal was larger still.
The mechanism is the same: a loss creates a deferred tax asset - a right to offset tax in future - and recognising it is recorded as income in the tax line.
And that recognition is conditional on an assessment that there will be future profit to offset it against. So it is neither cash nor certainty - it is a management assessment.
So the figure that describes the quarter is the pre-tax loss. Net profit of NIS 16.1 million is an accounting consequence of one line below it.
And what I do not know is the precise source of the benefit - the structured filing does not detail the tax reconciliation.
And the Balance Sheet: 65 Times Revenue
| Balance sheet total | NIS 13,207.7 million |
| Shareholders' equity | NIS 2,737.4 million |
| Leverage ratio | 4.8 to one |
| Balance sheet against quarterly revenue | 65 times |
And this is the ratio that explains the entire report.
NIS 13.2 billion of assets produce NIS 202.2 million of revenue in a quarter. In an industrial or retail business that ratio would be considered extraordinary. In power generation it is entirely normal: the infrastructure is expensive, and the income from it is spread over decades.
The practical meaning: a company like this is far more sensitive to interest rates than to demand. A one-percent change in the cost of debt touches NIS 13.2 billion of balance sheet; a change in the quantity of electricity sold touches NIS 202.2 million of revenue.
הזווית שלי
דעה אישית של אילן אברמוב - לא ייעוץ ולא המלצה
What I take from this report is a lesson in reading infrastructure companies.
The operating margin describes the asset - and here it is excellent. 52% on power generation says the facilities are working and the running cost is low. That is the operating part, and it is fine.
And what separates the asset from the shareholder is the debt that funded it - and at this point in time it takes more than everything the asset produces.
And I do not read that as a sign of distress, but as a sign of stage. A company building new facilities carries their full financing cost before they generate at full capacity. As the pipeline comes online the numerator grows while the denominator holds; and as the debt is repaid, the denominator shrinks.
So the number I will follow is not net profit - which is in any case a product of a tax line - but the ratio between operating profit and financing expenses. Today it is 105.3 against 128.3. The moment it crosses one, the company earns before tax.
And what I would look for in the full accounts is how many megawatts are already connected and how many are under construction - that is the figure that determines when that happens, 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.)
