June 2024 Monthly

In our note, Putting the discount into perspective, we noted Volta’s share price discount to NAV (27%) is now back to the levels seen in the early stages of the pandemic. This appears anomalous with the 7.6% total shareholder return in the first four months of 2024, the annualised cashflows of 22% of NAV, the consensus outlook, as well as the structured debt finance and all investment company averages (11% and 7%, respectively). In our view, any discount reflects investor concerns that either the current NAV is unrealistic or that it cannot be achieved in the future. In our note, we examined what may drive such concerns, concluding that they are more sentiment- than reality-driven; and, as such, they may be less likely to be sustained.

• Why the current NAV is realistic: Volta adopts a mark-to-market approach. The NAV should be real unless the pricing sources are inaccurate, which appears unlikely. The MTM approach captures sentiment risk in the asset valuation. In our view, the risk of yet-to-be-identified losses affecting the current NAV materially are low. There are multiple checks and reviews to ensure the process is robust.
• Apr’24 factsheet: The March return was 1.3% (YTD: 7.6%). For context, US High Yield returned -1.0% on the month and +0.5% YTD, while European High Yield was flat on the month (+1.6% YTD). Annualised cash receipts over the past six months were 22% of NAV (broadly stable since early 2023).
• Valuation: Volta trades at a double discount: its share price is at a 27% discount to NAV, and we believe its mark-to-market approach includes a sentiment-driven discount to the expected cashflows. Volta targets an 8% of NAV annual dividend, with €0.14 announced for the most recent quarter (10.2% 2024E investor yield).
• Risks: Credit risk is a key sensitivity. We examined the valuation of assets, highlighting the multiple controls to ensure its validity, in our initiation note, in September 2018. The NAV is exposed to 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 both the NAV and the discount to NAV may be volatile over time. We note the closest competitor to Volta has had a more stable NAV valuation due to a different asset valuation approach. Fundamental long-term returns have been robust: 7.9% p.a. (dividend reinvested basis) since inception. Volta’s performance relative to that of its peers has been strong, and returns for investments made after the financial crisis were double those in prior years.