Volta Finance: Simple Simon Says

Hardman & Co
[shareaholic app="share_buttons" id_name="post_below_content"]

In this note, we explore three aspects of Volta Finance plc (LON:VTA) portfolio, highlighting their simplification – simplified. Firstly, unless there is a compelling, opportunistic case, new investments will be in CLO structures only, and not in other structured finance instruments. The asset mix is being simplified. Second, there should be an increased weighting to AXA IM managed CLO vehicles, reflecting good performance and lower fees. The manager mix is being simplified. Third, we detail why CLOs are, at heart, simple cashflow structures, which should be viewed as such, free from the terminology that may confuse a clear story.

  • Simpler portfolio: Over recent years, Volta has seen an increasing weight to CLO investments. It has been agreed with the board to put into policy that reinvestment, when non-CLO assets mature, will be into CLOs, making the mandate much clearer. The portfolio will be more focused, as assets roll over.
  • Greater AXA IM managed CLO investments: AXA IM has been awarded “Best US CLO Manager of the Year” (in 2021, by Credit Flux), highlighting AXA IM’s performance. Volta is also not paying management fees on AXA IM CLO positions, and, over time, AXA IM CLOs are expected to be a higher share of the portfolio.
  • Valuation: Volta Finance trades at a double discount: its share price is at a 15% discount to NAV, and we believe its mark-to-market NAV includes a further sentiment-driven discount (5%-10%) to the present value of expected cashflows. Volta targets an 8% of NAV dividend (9.8% 2022E yield on current share price).
  • 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 Finance is an investment for sophisticated investors, as there could be sentiment-driven share price volatility. Long-term returns have been good: c.9% p.a. (dividend reinvested basis) since initiation. With above-average returns on recent reinvestments, the portfolio’s past six-month cashflow (annualised) yield is c.20%. We expect near 2x 2022 dividend cover.

DOWNLOAD THE FULL REPORT

Twitter
LinkedIn
Facebook
Email
Reddit
Telegram
WhatsApp
Pocket
Find more news, interviews, share price & company profile here for:
Volta Finance Limited (LON:VTA) posted a stellar 4.3% net performance in October 2024, boosting the year-to-date return to 18.4%, driven by CLO Equity gains.
Join Hardman & Co Analyst Mark Thomas on DirectorsTalk as he examines Duke Capital's growth strategies, equity raise, and risk management insights.
Explore ICG Enterprise Trust plc's impressive Q1 results, showcasing 14% EBITDA growth and strategic capital allocation insights from Hardman & Co Analyst.
Explore insights on Real Estate Credit Investments Ltd (LON:RECI) as Hardman & Co's Mike Foster discusses the company's strategies and market trends.
Explore ICG Enterprise Trust Plc's strategic growth and investment insights as Analyst Mark Thomas reviews their strong 1H FY25 performance.
Hardman & Co analyst Mark Thomas delves into Real Estate Credit Investments' strategic shifts, market outlook, and risk factors in a detailed interview.

Search

Search