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.
