VIGO Systems – Polish detector champion

+ Hidden Champion in a niche of IR detector market.

+ The future use cases of detectors is very large and is growing (for example self driving cars)

+ Very high margin sales speaks of the quality of Vigo’s products, also a nice track record of growth.

+ Founder led with high ownership from current and previous employees.

+/- Mass market products could lift Vigo into another level, but also high uncertainty who of Vigo’s customers will come up with a good enough use case to scale sales.

– Valuation already fairly stretched (in my view) but on a peer comparison level still not expensive.

– EU has decided to ban metals like Mercury which is essential for Vigo’s currently sold detectors, a 7 year exemption is likely.

– Very hard to fully understand this company and its product offering, the competitive landscape and what use cases have high potential for Vigo.

Introduction

In the 1980s, a team lead by Joseph Piotrowski, at the Military Technical Academy, developed a unique technology for the production of infrared detectors working without cryogenic cooling. This invention led to the establishing of what now is VIGO System S.A. VIGO is located to the west of Warsaw, Poland, and with over 130 employees they have a global market reach providing customers with world leading uncooled infrared photon detectors.

The Company’s unique position and quality of products is confirmed by the usage of its products and the high margins the company enjoys in its small niche. The company is a true “hidden champion” with an estimated market share of over 50% of the market. VIGO is also in the pursuit to keep pushing the boundaries of its products quality as well as lower price products. Its recent investments in production capacity is ramping up production capacity from 10,000 detectors per year up to 100,000 detectors. The investment thesis is that the world will find more and more use cases for VIGO’s products. With YoY growth of some 25% in the past years and given the wide usage of its products already, its a compelling case.

VIGO’s mid-IR detectors are complicated to understand and his has taken me considerable time to wrap my head around how they are produced and more importantly where they are used. This write-up will therefore spend quite a lot of keystrokes on the products and their use cases. Let’s jump into it

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Portfolio walkthrough – short comments

It’s high time to review my holdings and if anything changed in their investment thesis. This will be a monster post, for me it’s a great way to review all my holdings and make sure I stay up to date. For you, if you hold or are interested in one of these stocks you will get a quick “what’s the latest” with some sprinkles of why this is a great company (or not anymore). As a bonus there is a short elevator pitch of my two new holdings.

I stopped posting updates for every portfolio change (instead found under Trade History tab), so I have some changes to comment on: MIX Telematics left the portfolio and Lvji entered and exited without comment from my side. MIX Telematics was a case of having too high exposure to the oil industry in the US, I don’t see that coming back at all in the same way as in the past. This was something I did not understand when I invested, properly hidden oil exposure and a mistake on my side. Lvji was a tech play on travel guides for Chinese, but soon after taking a position some twitter friends alerted me of doubtful accounting. I looked at it myself and couldn’t really feel comfortable, better safe than sorry I then sold at almost the same price I bought.

Now on to comments on all my current holdings from top to bottom in the table below.

Press “read more” and enjoy!

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