July 2024 Monthly

In our note, Putting the discount into perspective, we noted Volta’s share price discount to NAV (26%) is now back to the levels seen in the early stages of the pandemic. This appears anomalous with the 9.5% total shareholder return in the first five months of 2024, 14 consecutive months of positive performance, the annualised cashflows of 22% of NAV, and the consensus outlook. It is well above the structured debt finance and ex-3i all investment company averages (12% and 15%, respectively). In our note, we examined what may drive investor concerns that either the current NAV is unrealistic or that it cannot be achieved, concluding that they are more sentiment- than reality-driven; and, as such, they may be less likely to be sustained.

• Current market conditions: Fundamentals in underlying loan markets continued to display no weakness (notably, default rates down to 1.08% in the US, Europe 1.48%). Primary CLO markets are active. The pickup in loan refinancings has been increasing the speed of prepayments in amortising CLOs and fuelling CLO refinancing and reset activity (see Re-Set, Re-Fi, Re-Light my Fire for benefit).
• May’24 factsheet: The May return was 1.7% (YTD: 9.5%), the 14th consecutive positive month. CLO equity performance was 3+% in May. For context, US High Yield returned +1.6% YTD, while European High Yield +2.6% 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 26% 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% 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.