One of the best performers on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) today has been Challenger Ltd (ASX: CGF).
The shares of this leading investment management firm and Australia’s largest provider of annuities have rocketed higher in morning trade and are up by almost 7% to $10.69 at the time of writing.
The reason for the strong showing is the release of a very positive quarterly update. For the September 2016 quarter Challenger’s total group assets and funds under management increased by 3% on the previous quarter to $62 billion.
The key driver of its growth this year has been its annuity sales. They have increased 46% on the prior corresponding period, with term annuities up 21% and quarterly lifetime annuity sales up a massive 208%.
During the quarter (and for the second quarter in a row) Challenger delivered quarterly annuity sales in excess of $1 billion.
Playing a key role in its annuity sales growth this year has been the increasing number of investment platforms that the company’s products are now being offered on.
Colonial First State and VicSuper are two notable companies that have begun offering Challenger’s products to their customers. Furthermore, Challenger’s CEO Brian Benari pointed to off platform sales via financial advisers as being another key driver of growth.
Mr Benari believes the company is in a great position to meet the changing needs of Australia’s ageing population. In the release he stated:
“The superannuation industry continues to move ahead of the retirement income regulatory reform agenda to meet client needs by implementing comprehensive retirement income solutions. Retirees are increasingly seeking longevity protection in the form of annuities to supplement the Age Pension. Financial advisers are implementing income layering and retirement income model portfolios to meet the needs of these retirees.”
Management reiterated its full year guidance for FY 2017. Advising that Life’s normalised cash operating earnings are expected to be in the range of $620 million to $640 million. The company remains committed to its target of 18% pre-tax normalised return on equity.
Overall this was yet another impressively positive quarter for Challenger. The company looks to be in a great position for solid growth over the next few years which could make it a good investment today.
At 17x full year earnings its shares may be trading at a premium to industry peers IOOF Holdings Limited (ASX: IFL) and Platinum Asset Management Limited (ASX: PTM), but I personally think it’s worthy of the premium.
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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. 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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