Elbit Vision Systems Ltd. (fka EVSNF)

[Ponch73]

Fish,

I think that you're right, to a degree. While EVSNF technically generates revenues from the sale of hardware products, some of its competitive advantage appears to reside in its software expertise (which includes writing the software to run on the vision system products as well as programming the hardware to run the software efficiently). But I'd characterize the competitive advantage more broadly by classifying it as "knowhow."

I believe that EVSNF's products are made primarily with off-the-shelf components (IBar, in particular). I believe that it is the low cost producer in its space, and I believe that its ability to stay ahead of competitors centers around continuous innovation.

Like you, I like that EVSNF is predominantly focused on the textile space. It represents a specific niche that the company knows well, and has both struggled and persevered in addressing over an extended period of time. As a result, I think it enjoys a lead in that niche and, accordingly, sees an interesting runway in front of it. There are obviously no guarantees here, but the longer-term opportunity (to replace the manual inspectors of its customers with vision systems) appears promising to me (although, in the spirit of full disclosure, my judgment is far from infallible). Here's my elevator pitch:

1. The value proposition of EVSNF's products are clear to me -- (1) improving yields and reducing raw material waste and (2) replacing labor costs associated with manual inspectors.

2. The business appears to be very attractive -- high cash returns on invested capital (although those returns are a bit overstated because the company doesn't yet pay taxes), and trades at what appears to be a very reasonable price (if one assumes the veracity of the publicly-reported financial statements).

3. Management seems aligned with shareholders by having skin in the game, appearing not to be greedy (despite effectively controlling the board), and demonstrating a 6-year track record of success and credibility turning around the company, albeit with some setbacks (e.g., 2013, missed iBar guidance in 2015).

Cheers.