I think that Challenger Ltd (ASX: CGF) is one of the most attractive growth shares on the ASX at the moment.
Challenger's main source of earnings is from selling annuities to retirees. It has a very promising future based on the following three reasons in my opinion:
Bigger addressable customer base
It seems that Challenger's customer base is just going to get bigger and bigger over the coming years.
The number of people in retirement, people aged over 65, is projected to grow by 40% over the next decade and 70% over the next 20 years.
If Challenger can just hold its market share of annuities then it will steadily win more and more as a growing number of people want a guaranteed source of income for their money.
Bigger potential annuities
There could be more annuities, but the size of the annuities should grow over time too:
The mandatory 9.5% super contributions makes Australia's retirement system one of the best in the world. Rising wages translates to bigger super contributions, which means a bigger pool of assets that can be turned into annuities down the line.
Compounding also grows the superannuation pot year after year. If super fund balances can continue to grow at 9% or 10% a year over the long-term then that's more money to be turned into annuities.
Higher allocation of retirement assets to annuities
If Labor win and enacts their plans to crimp negative gearing and franking credits then annuities & fixed interest investments could become more popular. Australia has a very low level of investments allocated to fixed interest compared to the UK, USA and Canada.
Improved means testing and government laws requiring superannuation funds to offer guaranteed income could also increase the allocation of assets to annuities.
Foolish takeaway
Challenger can win in several ways over the long-term. It's not growing earnings at a crazy pace, but may be able to grow earnings by high single digits or low double digits for many years to come.
It's currently trading at only 14x FY19's estimated earnings with a grossed-up dividend yield of 5%.
