MENU

4 reasons why I like Challenger Ltd (ASX:CGF) at this share price

The Challenger Ltd (ASX: CGF) share price has fallen by almost 13% over the past month. I’m always interested when a long-term growth share that I own becomes better value.

Here are four reasons why I’m interested in Challenger:

Ageing tailwinds

Challenger is highly exposed to the ageing tailwinds of Australia. Challenger provides annuities for retirees to turn their lifetime’s capital into a guaranteed source of income.

The more retirees there are, the bigger demand there should be for annuities. The number of people over 65 is projected to increased by 70% over the next 20 years and 40% over the next 10 years. This will be a good organic boost for annuities in the years ahead.

Supportive government policies

The government is a key part of Australia’s retirement system. The mandatory superannuation contribution of 9.5% means more money is flowing into the superannuation pool, adding to the eventual size of the annuity. The mandatory contribution is set to rise to 12% over the next decade – but that’s no guarantee this will happen.

In the recent budget the government announced a new requirement where all superannuation funds must offer members the option of a guaranteed source of income. As the clear market leader in this space, Challenger is very likely to benefit.

Valuation

The nature of Challenger’s business will mean it always trades at a somewhat low valuation. However, it’s trading at 14x FY20’s estimated earnings and is likely to keep growing profit at a rate of high single digits for a long time to come – this could provide attractive returns, particularly with a growing fully franked dividend.

Compounding

Challenger has a large amount of assets that should benefit from compounding returns over time.

Challenger’s clients’ potential annuities are also getting bigger every year due to their superannuation balance growing with compound interest every year.

Foolish takeaway

Challenger has a lot of different avenues for growth including Japan and additional sale channels. I think it’s one of the best mid/large cap shares on the ASX and I want to accumulate more shares.

The rising interest rate in the US could have a negative effect in the short-to-medium-term, but the long-term looks very promising.

Another share that could generate strong returns alongside Challenger over the coming years is this top ASX share that is starting to expand into Asia.

OUR #1 dividend pick to grow your wealth now is revealed for FREE here!

You might not know this market leader's name, but it's rapidly expanding into a highly profitable niche market here in Australia. Even better, the shares boast a strong, fully franked dividend that should balloon in the years to come. In other words, we're looking at the holy grail of incredible long-term growth potential AND income you can watch accruing in your account in real time!

Simply click here to grab your FREE copy of this up-to-the-minute research report on our #1 dividend share recommendation now.

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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.