Increasing my P2P portfoilo

This week something historic happened in Singapore's crowdfunding scene -  a company related to an SGX-listed company sought to raise debt via crowdfunding. It was none other but Epicentre- once famous for selling Apple products.

You can read the article here.

Epicentre Crowdfunding

It is quite unprecedented for Epicentre to raise funds this way. Prior to this, the company relied on unsecured bank loans which yielded 3+% - 4+%. However, now it is relying on callable and equal monthly installment loans for working capital and purchase of inventory.

Looking through Epicentre full year and recent 1H results, my guess estimates is that the company is likely to generate 500k annually in operating cash flow before working capital changes. With a balance sheet of current cash (4.5mil), trade receivable (6.5 mil) against trade receivables and debts of about 20 mil, my sensing is that Epicentre is likely to roll over debts (bank or P2P). Fortunately for them, they have now secured a new "revolving credit facility" with Moolahsense. This allows them to tap onto a new platform for capital.

What I have done

After a through analysis, I have decided to put my money into its equal monthly installment debt. No doubt the effective yield is smaller, however there are two advantages.

Firstly, "optimal deployment of cash". As of now, I am holding a high level of cash as I am unable to find bargains in the stock market. Deploying some of these cash in such equal installment monthly bonds, I am able to yield a decent return on my "warchest"; and over time will hopefully have the cash again in my warchest when the stock market tanks. It is worth noting even if the stock market tanks, I will only buy with each level of decrease and hence money parked in these equal monthly bonds can be viewed as my last line of "bullets" (hopefully the war does not happen in 6-8 months time).

Secondly, equal installment bonds are less risky than callable because the company has to make monthly repayments instead of a principal lump sum at end of period. Essentially, capital preservation is one factor.

Local crowdfunding scene

Unfortunately, unlike last year, the crowd funding scene has heated up. As a result, now I do not have the luxury of thoroughly analyzing the companies before investing. Epicentre was the exception as financials of the company was readily available, I had prior knowledge of the company for following them in 2013-2014 and had adequate time due to the size of capital raised.

All being said, it seems there is a pent up demand by retail investors to seek high returns and a lack (but increasing) number of P2P loans. At this juncture, I will like to remind readers it is very important to do due diligence in your P2P investments especially when it is still an unregulated financial landscape. Also, please diversify; while i state my P2P loan as one component, I have lent out to 6 different SMEs.

Short update to hypothetical and Real portfoilo

Quick Summary

In line with my bearish outlook and following from my post, my hypothetical "insurance arm" has decided to sell off all STI ETF holdings at today's price of 2.83. This means netting a sales proceed of s$1003.90, after  "brokerage fee of Stan Chart and clearing fee rates" Coupled with the 4.6 cents dividend received, Total net proceeds is now $1020.20 and will be placed as cash.

A positive 2.02% was achieved. As per my fund restriction, only the STI ETF can be bought and sold. No other equities can be targeted.

The transaction has been reflected on my "challenge" page.

Real portfolio

I have purchased more stake in FSL trust @ 0.138 today. Not to be a broken recorder, just read my previous latest post to see why I am positive on this stock.

I am aware of the concentration risk and will be managing it. Well, payday is coming, so its just using my March pay to add to FSL trust :)

Nothing much has changed

On 4th Jan 2016 (the first trading day of 2016), the SPDR STI ETF was selling at $2.90. Fast forward to today, the STI ETF is $2.84 and has given dividends of 5.1 cents. So overall, little loss has been made despite the tremendous amount of news and market gyrations. 

Nothing has changed since New Year's Day

That's pretty much it, nothing much has changed since the start of the year. The narrative is still the same: Oil price is down, some economies in Asia are slowing as expected and wall street is now expecting a few rate hikes as insisted by Fed Chair, Janet Yellen.

This comes to show how important it is for us as investors to ignore the noise (gyration) of the market and focus on fundamentals and what is happening on ground.

Based on observations, I am not sanguine of our economy especially on the oil & gas and commodities sector. *My viewpoint remains unchanged since Nov 2015. Some observations I have noticed are the slowing sale of property units here (by URA's data), local companies contemplating retrenchment to rightsize and an uptick in employment hire by a particular public service sector due to increasing applications; my opinion is things may be getting worse. 

What I am doing

As well coined by a certain blogger: "Don’t fall into the trap of thinking a downturn affects all companies in the sector the same way"; it is important to sieve through beaten down industries to search for the well managed ones as evident by their history of cash flow generation and balance sheet. This is because the market may have indiscriminately sold down all stocks in a particular sector - even the well managed ones.

As such, I am eyeing a few O&G related counters and have initiated a small stake in Tiong Woon. The company specializes in cranes and have a heavy exposure to O&G customers. However, given that the company is much more conservatively geared as compared to Tat Hong (worth noting has a different customer base) and that its new HQ is now ready, I am giving it a go at 0.22 (albeit 5 lots as that was what Mr. Market was willing to sell me). 

Similarly, I have accumulated FSL trust despite the lower tanker rates vis-a-vis 3 months ago. The company is on the right track in downsizing its debts and is generating strong cash flow. I expect it to generate 70 mil in operating cashflow, which means an estimated free cash flow of 14 mil (current market cap of 93 mil). Of course, I am mindful that its operating cash flow will be dependent on the market conditions of tanker's market rates.

"Shorting" the market

Instead of daring to short the market via CFD, I have decided to hold more cash to reflect my bearishness. In the recent run up, I have decided to divest from Accordia and some stake in Silverlake Axis. From Silverlake's cash flow, the company is just about able to sustain its annual dividend of 3 cents. Hence at the selling price of 0.615, my opinion is that it is just about fairly valued at 4.8% yield. The price is right and it is time to convert some of these investment into cash. 

This is my way of "shorting" the market - accumulating cash. The growth of my ready to access cash is now at $100,000.  That does not mean I will be trigger happy and purchase any falling knife. Discretion in purchases is still important and targeting companies with a strong/clean balance sheet and operating well under a conservative/good management (be it in a distress or "recession proof" industry) is what I will still have to do.