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Should you buy Challenger Ltd at this share price?

The Challenger Ltd (ASX: CGF) share price has grown by 28% over the last six months, is it still a buy at this share price?

Challenger is a fund manager and the annuity market leader of Australia. It has just reached a market capitalisation of $7 billion.

There is a lot to like about Challenger, such as the following reasons:

It is achieving strong annuity growth

Challenger has been ramping up its advertising to the public and financial community. Annuities are a complex business, so a lot of financial institutions have decided just to re-brand Challenger annuities as their own.

Some of the institutions offering Challenger products include Colonial First State, Suncorp Group Ltd (ASX: SUN), CareSuper, LegalSuper and Local Government Super.

Challenger products will be offered on AMP Limited’s (ASX: AMP) platforms and BT Investment Management Ltd’s (ASX: BTT) platforms in the first quarter of the 2018 financial year.

All of this expansion of Challenger’s products led to it growing annuity sales by 34% to $2.2 billion in the half-year to 31 December 2016.

Large baby boomer cohort retiring

The number of people entering the retirement phase is expected to grow rapidly thanks to the baby boomer generation.

A lot of retirees will be looking for secure ways to enjoy the capital that they have built up for themselves. People often like choosing the brand that they know and trust, Challenger is rated by 96% of advisers and is recognised by 62% of consumers. It’s the largest annuity provider in Australia by some distance.

Growth of superannuation

The superannuation pool of assets is expected to grow strongly over time due to the mandatory and increasing contribution rate, the ageing demographics, and the tax benefits in the retirement phase.

Australia has the fourth-largest pension market in the world and it’s growing at twice the speed of the global pension market. Challenger will be a winner in the long-term from this growth.


Financial companies are always more at risk from an economic recession than most other industries, Challenger is no different with its huge funds under management.

There is also a risk that Challenger hasn’t forecast its liabilities correctly and it has to pay out more than expected in the long-term. Of course, the reverse could also be true and it actually benefits.

Foolish takeaway

The Challenger share price has grown to $12.39 as of today, which is great for investors who already hold shares. At the current price investors need to take a long-term view to make sure they generate market-beating returns.

But I think Challenger will keep growing strongly and is worth a buy for long-term investors. Our number one dividend pick for 2017 is also definitely something you should consider for a great long-term investment.

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Motley Fool contributor Tristan Harrison owns shares of Challenger Limited. The Motley Fool Australia owns shares of Challenger Limited. 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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