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In our note, Follow the money, published on 3 February 2020, we reminded investors of Volta’s attractions and risks and how it generates the cash to pay the dividend (yield 9.4%); we also reviewed the Report and Accounts. The core to paying the dividend is generating cash from the underlying 700 borrowers, a broad diversification by counter-party, geography and economic sector. Currently, a near-record level of income yield is being generated. While recent months have seen both forex and sentiment volatility, with a range of positive and negative capital movements, the long-term performance will be driven by cash generation. The discount appears anomalous given Volta’s track record.

  • Volta monthly report: January NAV rose 1.1% to €7.69 per share. The local currency performances were +1.0% for Bank Balance Sheet transactions, +1.0% for CLO Equity tranches, +2.0% for CLO Debt, -6.9% for Cash Corporate Credit deals (2% portfolio, two illiquid positions marked down), and +0.2% for ABS.
  • January peer reports: Blackstone GSO Loan Financing’s € NAV rose 0.61% (different accounting basis from VTA), Fair Oaks Income’s $ NAV rose 2.48%, Marble Point’s $ NAV rose 0.77%, and TwentyFour Income Fund’s £ NAV rose 1.97%. We reviewed Volta’s peers in Diving deep finds you the treasure.
  • Valuation: Volta trades at a 14% discount to NAV. Peer CLO finance funds trade at a ca.7% discount. In recent months and over the medium term, Volta has delivered a better NAV performance than its immediate peers and in-line volatility, making this relative discount anomalous, in our view.
  • Risks: Credit risk is a key sensitivity (Volta has a widely diversified portfolio). We examined the valuation of assets, highlighting the multiple controls to ensure its validity, in our initiation note. NAV is affected by sentiment towards its own and underlying markets. Volta’s long $ position is only partially hedged.
  • Investment summary: Volta is an investment for sophisticated investors, as there could be sentiment-driven share price volatility. However, long-term returns have been good, at 10.2% p.a. (dividend re-invested basis) over five years. The current portfolio is generating near-record levels of income (rolling six-month annualised income yield in the fund 15.1%, new investment projected yield 13.5%). This is the key support to the prospective dividend yield of 9.4%.
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