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Why Challenger Ltd (ASX:CGF) just bought more shares of Experience Co Ltd (ASX:EXP)

Sometimes large fund managers are able to research businesses better or have access to better data compared to us regular investors.

It can be telling if a large fund manager invests in a relatively small business – there’s a good chance it’s a hidden opportunity.

Challenger Ltd (ASX: CGF) is one of the largest fund managers in Australia and recently added to its position in Experience Co Ltd (ASX: EXP). It added a further 5.6 million shares and it now owns nearly 7.2% of the business.

Experience Co is mostly an outdoor tourism business and is the leader in adventure tourism. It offers everything you could think of like skydiving, Great Barrier Reef cruises, hot air balloons, water rafting and plenty more.

Terrible weather has been very detrimental to the company’s earnings this year. That’s why the share price has fallen by more than a third since the high at the start of the year.

However, with freakish weather unlikely to repeat again in FY19 there is potential for a quick recovery. The business also has the potential to grow with more tourists, higher prices and acquisitions of small competitors.

Despite losing so many days this year to bad weather the company is still on track to make a decent profit for FY18 and in FY19 the company expects to realise synergies from its recent acquisitions and achieve solid organic growth.

Foolish takeaway

I’m personally not sure how much long-term growth there is in an adventure tourism tailwind.

It may be trading with a forward price/earnings ratio of around 20 and it’s best to buy shares when there’s short-term pain but I won’t be following Challenger with this trade.

Instead, I'd actually rather buy shares of Challenger or one of these top shares for my portfolio.

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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. The Motley Fool Australia owns shares of EXPERNCECO FPO. 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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