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Challenger Ltd (ASX:CGF) grows AUM to $81 billion in September 2018 quarter

The Challenger Ltd (ASX: CGF) share price will be under scrutiny this morning after the fund manager and annuity business reported its figures for the September 2018 quarter.

For those who don’t know, Challenger is the country’s leading annuity business. It turns people’s capital into a secure source of income for a fixed term or for life.

Funds under management (FUM)

Total assets under management (AUM) grew to $81 billion whilst total funds under management (FUM) increased by $300 million to $78.2 billion.

FUM gained $700 million from positive investment markets but was hurt by $400 million of net outflows.

Life sales

Total Life sales were $1.57 billion, which was in line with the prior corresponding period. Total annuity sales were up 7% to $1.17 billion. Fixed term annuity sales, which includes MS Primary, also increased by 7%. Australian fixed term annuity sales grew by 25% to $849 million.

MS Primary sales were down 52% on the previous year’s quarter, although it was a 22% increase on the June 2018 quarter. Challenger explained this by saying the sales depend on the reinsurance rate and relative interest and foreign exchange rates.

Lifetime annuity sales grew by 6% to $222 million. Challenger is already benefiting from confirmation of means testing treatment for lifetime income products and continued good demand for CarePlus.

The life net book grew by $425 million, representing 3.1% growth for the quarter.

New distribution

Challenger is expanding its distribution network, it will soon be launching its fixed-term and lifetime annuities on the Netwealth Group Ltd (ASX: NWL) platform.

Once all of the planned platform launches are complete, Challenger annuities will be available to more than 70% of Australia’s financial advisers via their preferred primary platform.

According to Challenger “platforms and leading superannuation funds are moving ahead of retirement income reforms” and this positions Challenger well for the future.


Challenger re-iterated its guidance of normalised net profit before tax (NPBT) growth of between 8% to 12% for FY19.

Foolish takeaway

Challenger shares have opened positively to this update. I would agree, I think Challenger is one of the most attractive mid-cap growth shares on the ASX at the moment considering it is trading under 16x FY19’s estimated earnings with attractive long-term tailwinds.

If it stays at around this price I’ll be looking to top up my holdings soon, I think the fall in share price reflects the higher risk of rising interest rates.

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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.