In this report we review Volta Finance Ltd (LON:VTA) volatility during recent “crisis” periods (2025 tariff uncertainty, Russia’s 2022 invasion of Ukraine, early COVID-19 experience). In one of these events, Volta’s share price showed more volatility than that of equity markets, in one it was broadly in line, and in one it displayed less volatility. There is insufficient evidence to say Volta is more or less volatile than equity markets in risk-off periods, which may come as a surprise to some investors. Investors need to consider both sentiment effects (on the VTA share price and the price of its assets) and fundamentals (CLO structures build in many downside risk protections).
- Sentiment: In our view, the biggest factor driving whether VTA has shown more or less volatility has been stock-specific sentiment at the time. In some risk-off periods this has been more positive than for overall markets, and in others less so. With real value volatility driven by different factors, mispricing anomalies arise.
- Fundamentals: While in sentiment terms CLOs may be viewed by some equity investors as being risky, and so volatile, the reality is that CLO structures have many risk-reduction features that limit downside sensitivity. Both historical and expected CLO losses are below the broader corporate market equivalents.
- Valuation: Volta Finance trades at a double discount: its share price is at a 12% discount to NAV, and we believe its MTM NAV still includes a further sentiment-driven discount to the present value of expected cashflows. Volta targets an 8% of NAV dividend (9.4% 2025E yield, on current share price).
- Risks: Credit risk is a key sensitivity. In this note, we examine the valuation of assets, highlighting the multiple controls to ensure validity. The NAV is exposed to sentiment towards its own and underlying markets. Volta’s long dollar position is only partially hedged.
- Investment summary: Volta Finance’s NAV, and the discount to NAV, may be volatile over time. Fundamental long-term returns have been robust: 9.1% p.a. (dividend-reinvested basis) since inception. Volta’s performance relative to that of its peers, and the market it operates in, has been strong. Returns on investments made after the financial crisis have been double those pre crisis.
