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Challenger posts strong full-year results

Challenger (ASX: CGF) shares have posted strong gains in early trade this morning, thanks to a solid full-year report.

Chief executive officer Brian Benari was pleased to report that the company’s “funds management business is growing strongly and profitably” and its “annuities business continues to prosper as Baby Boomers retire and seek security and regular income”. Year-on-year statutory profit rose 180% to $417 million whilst normalised NPAT grew 4%.

After buying back 14 million shares throughout the year, Challenger has raised its dividend from 18 cents to 20 cents per share and said it will look to increase its payout and provide partial franking in 2014. Despite a 34% surge in total AUM, costs rose only 2%.

Challenger is an investment management firm specialising in providing financial security for retirees and its position within the market puts in line for long term growth. The needs of a growing number of baby boomers entering retirement has enabled its Life (annuities) business to post an 18% increase in product sales and grow FUM to $10.8 billion.

Challenger’s Funds Management division has performed well in this past 12 months because of the strong performance of financial markets. Net flows increased by 65% to $7 billion, which drove total FUM up 33% and grew EBIT 62% to $34 million.

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Source: Challenger FY13 Market Release

Outlook

Challenger’s strong performance in recent years has enabled it to form relationships with groups such as Bendigo and Adelaide Bank (ASX: BEN) and become the ninth largest fund manager in Australia. Challenger’s Life business is likely to continue to perform steadily in the next year whilst strong financial markets will increase total FUM and grow its Funds Management business.

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Source: Google Finance

Foolish takeaway

Listed Australian financials such as Suncorp (ASX: SUN), AMP (ASX: AMP) and the banks have been buoyed by excellent market conditions. Challenger’s life division provides the company with the ability to perform steadily in coming years thanks to a growing number of retirees whilst its funds management group has proven it will return well when markets perform strongly. Together with strong demand for its annuities and the likelihood of increased dividends above its current 4.2% payout, Challenger deserves a spot on watchlists.

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Motley Fool contributor Owen Raszkiewicz owns shares in Challenger.   

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