# Volta Finance Follow the money

- Link: https://www.directorstalkinterviews.com/volta-finance-follow-the-money/412804600
- Published: 2020-02-03T10:56:21+00:00
- Author: Amilia Stone

In this note, we remind investors of **[Volta Finance](https://www.directorstalkinterviews.com/company/volta-finance/vta.as)**(
[LON:VTA](https://www.directorstalkinterviews.com/company/volta-finance/vta.as))
attractions and risks, focus on how it generates the cash to pay the dividend, and
look at some of the issues from the latest Report and Accounts. The core to paying
the dividend, and its long-term [sustainability](https://www.directorstalkinterviews.com/sustainability-green-stocks-news),
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.

 * **Higher income cover of dividend:** In recent years, a combination of portfolio
   mix changes and continued favourable credit has seen revenue yields of 13%-15%,
   well above the dividend cost of 9.5%. This strong performance has been hidden
   by short-term, forex- and sentiment-driven noise, which has seen a volatile NAV.
 * **Report and Account takeaways:** The manager explains why there has been a shift
   from CLO debt into CLO equity and the risk/reward opportunities. We also note
   even more external pricing of assets for valuation purposes, the modest UK exposure
   and an increased sensitivity to credit.
 * **Valuation:** Volta trades at a 15% discount to NAV. Peer-structured finance
   funds, and a range of other debt funds, on average, trade at smaller discounts.
   Volta has delivered faster NAV growth than its immediate peers and in-line/lower
   volatility, making this absolute and relative discount an anomaly.
 * **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. We noted the NAV is affected by 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: ca.10% p.a. returns (dividend reinvested basis) over five years.
   The current portfolio-expected cashflow IRR is above this level. The dividend
   yield of 9.5% will be covered, in our view, by predictable income streams.

[DOWNLOAD THE FULL REPORT](https://www.hardmanandco.com/wp-content/uploads/2020/02/Volta-3-Feb-2020.pdf)

Share on: