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Challenger Ltd reports quarterly AUM growth of $2 billion

Challenger Ltd (ASX: CGF) is Australia’s market-leading provider of annuities. Every quarter the company reports its assets under management (AUM) and annuity sales.

The headline figure from Challenger’s release to the market is that AUM grew by 3% over the quarter from $76.5 billion in December to $78.5 billion in March. This seems like solid growth in just three months.

Challenger also revealed that its total life book grew by 5.2% in the past quarter alone.

However, total life sales represented $1.1 billion, which was down 13% on the prior corresponding period. Challenger explained this mainly occurred from a lower Japanese reinsurance quota share, which is Challenger’s share in each sale. According to Challenger the reinsurance quota share varies sometimes, in the March 2018 quarter the quota share was half what it was in the prior corresponding period. This equated to a $166 million lower contribution from MS Primary.

Australian term annuities increased by $48 million, or 12%, to $435 million. Lifetime annuity sales figure of $217 million was similar to last year’s figure.

Challenger management re-iterated that the business remains on target to reach normalised net profit before tax guidance of between $545 million and $565 million for FY18, which will be an increase of 8% to 12% compared to FY18.

The company is still aiming for a 18% pre-tax normalised return on equity in the long-term, but it may not achieve that this year due to the higher levels of capital.

Challenger’s CEO, Brian Benari, said “Disciplined implementation of our strategy is continuing to drive business diversification and very healthy growth in assets under management, increasing by $12 billion in the past year.”

He also said “Challenger remains on track to achieve $600 million of total sales from the MS Primary annuity relationship for FY18, in line with our guidance.”

Foolish takeaway

Challenger remains my favourite finance business on the ASX, but it’s clear to see that growth is slowing a little, largely because of how large Challenger already is. However, profit growth of at least 8% for FY18 will be a solid effort on top of all the previous growth in other years.

If I didn’t already own Challenger shares I’d be interested in buying at the current price, but I’ll be waiting for it to drop perhaps another 10% before considering adding to my position.

Until Challenger trades at a cheaper price, I have my eye on this top growth stock which is expecting growth of more than 30% this year.

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Motley Fool contributor Tristan Harrison owns shares of Challenger Limited. The Motley Fool Australia owns shares of and has recommended 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 Scott Phillips.

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