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Challenger Ltd shares jump on strong quarterly flows: Is it a buy?

Australian $50 dollar notes

Shares of fund manager and annuities provider, Challenger Ltd (ASX: CGF), traded higher today on the back of its third quarter update.

Challenger, Australia’s leading provider of annuities to retirees, said total assets and funds under management (FUM) jumped 6%, or $3.3 billion, to $60.4 billion with both of its businesses reporting encouraging growth.

Challenger Life, which provides fixed income annuities, saw sales of $840 million during the three months to 31 March 2015, up from $496 million in the prior corresponding period.

Seasonally, the third quarter is the weakest for the Life business.

Brian Benari, Challenger’s CEO, said, “With the third quarter our seasonally quietest period for annuity sales, we’ve still managed to grow fixed term annuity sales by 9%, compared with the same period last year, and continued to experience strong demand for lifetime retirement income annuities, which accounted for 18% of total retail annuity sales in the quarter.”

Challenger’s push into funds management also seems timely. The business recorded a $3.5 billion increase in FUM, attributable to favourable market movements and net flows of $694 million.

Challenger has now exceeded $60 billion in total assets and funds under management, representing a significant milestone for the business,” Mr Benari said.

Should you buy Challenger shares today?

Challenger is likely at the start of some promising long-term tailwinds. Indeed, the Australian superannuation system is expected to grow significantly in the years ahead and baby boomers entering retirement are also expected to increase their demand for annuity-style products.

However, Challenger’s share price has run hard in the past 24 months, far outperforming the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO). Whilst larger profits will likely be on their way in the near term, as property and equity markets rise, investors should aim to purchase funds management stock during times of tougher market conditions than we’re experiencing now.

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Motley Fool contributor Owen Raskiewicz has no position in any stocks mentioned. Owen welcomes your feedback on Google plus (see below) or you can follow him on Twitter @ASXinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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