Investment manager Challenger Ltd (ASX: CGF) has seen its share price hit hard over the past few months, dropping roughly 20% from a peak of $8 back in July.
Despite the falling price, Challenger continues to grow its business and offers another great example of how quarterly reports can indicate a value opportunity even as the market is selling down.
In the first quarter of FY15, Challenger reported several major highlights:
- Total group assets and funds under management of $54.2b, up 7% on the previous quarter and up 18% on first quarter 2014
- Increase in annuity sales of 8% to $788 million, with institutional leaping from $18m to $98m and retail annuities decreasing from $714m to $690m
- An association with Colonial First State (CFS) which will allow Challenger's annuities to be offered through CFS' FirstChoice and FirstWrap retail investment platforms
Management believes the decline in retail annuities is due to advisers focussing on new income deeming rules that come into force on 1 January 2015, with the decline expected to reverse after that date.
I'm more excited about the addition of Challenger's products to Colonial First State's investment platforms, which will give them excellent proximity to clients and make it 'easier than ever' for advisers to give clients a fixed income.
While the benefits of the arrangement are not expected to flow until FY16, FirstChoice and FirstWrap are believed to service around 50% of financial advice businesses in Australia and Challenger should expect decent improvements to its annuity sales from then.
Combined with its future prospects, management is targeting retail annuity book growth of 12-14% for 2015 and reaffirms its cash operating earnings guidance of $535-$545 million.
This means investors are likely to see dividends and normalised profit rise again this year and I believe Challenger will make up the lost ground in its share price as the market remembers the potential of one of Australia's premier fund managers.
In light of that, the current price is a bargain – actually only 16c more than I paid for it back in January – and fence-sitters should take full advantage.
Otherwise check out The Motley Fool's free report below for another great stock that's slipped more than 15% in recent weeks, moving it firmly into BUY territory:
