Av-Gad's cash flow is negative. The company: "We have no liquidity problems"
After bringing Barak Finance into its structure, the company is looking for partners and may bring in institutional investors. The board of directors determined that despite the negative cash flow, there are no liquidity problems. The company published its reports for the second quarter, which show that the company sold 32 apartments in the quarter, compared to 10 in the previous quarter.
Av-Gad is considered one of the strongest companies in the field of urban renewal. Its second-quarter report outlines future forecasts: the company aims to increase its backlog, currently holding 12 maturing projects with 1,824 apartments and approximately 39,000 additional housing units. A primary objective is to improve liquidity and equity through collaborations on future projects with investment bodies and developers, as Av-Gad seeks to bring institutional investors and large firms into its structure.
Last week, the company signed a memorandum with the Barak Finance group to establish a joint subsidiary, "Av-Gad Ba-Ir". This entity will specialize in urban renewal projects in the center of the country and will take on 24 existing projects, with Barak holding a 49% stake.
Despite the scope of its projects, Av-Gad sold only 10 apartments in the first quarter. In the second quarter, this performance improved, with sales nearly tripling to 32 apartments. Following the balance sheet date, the company sold an additional 9 units. The average apartment price was 3.27 million shekels in the first quarter and 3.087 million shekels in the second. Sales growth was driven largely by the Tzalach Shalom project in Petah Tikva, which accounted for 21 sales.
Company revenues grew from 81 to 116 million shekels between the first half of last year and the current period. Revenue is driven by the substantial increase in the volume of projects under construction, as revenue recognition is tied to project progress. In the second quarter, the company moved from a loss of 7.5 million shekels in the first quarter of last year to a profit of approximately 29 million shekels.
According to the report, the company has a continuous negative cash flow from current operations in the consolidated report amounting to about 98 million shekels. The board of directors has reviewed these warning signs, including the projected cash flow.
The review accounted for cash balances of approximately 10.6 million shekels, expected expenses and investments of 742 million shekels, and liabilities of 471 million shekels, including planned fundraisings and existing credit lines totaling 332 million shekels. The company stated: "The board of directors determined that the existence of a continuous negative cash flow from current operations does not indicate a liquidity problem, and the company is expected to meet its existing and expected financial obligations when they become due."
The company's primary financing comes from bonds (series B, C, and D) totaling about 216 million shekels with interest rates of 6.2%-9.5%. Credit lines for construction costs are affected by changes in the prime interest rate. Total credit from all bodies stands at approximately 183 million shekels, including a 127 million shekel loan for construction and the purchase of an office floor in Ra'anana.
The company is anticipating an interest rate reduction: "As the trend of decreasing inflation and interest rates continues, the company expects savings in financing expenses, which may lead to increased demand from buyers and improved operational results. In the long term, rising inflation and interest rates could lead to a recession in Israel, which might decrease demand and negatively impact the company's performance."
