I'm going to hold onto my Challenger Ltd (ASX: CGF) shares for the long-term, despite the disappointing update yesterday.
If you didn't see it, Challenger said that it expects to reported normalised net profit before tax of $270 million in the upcoming half-year result. Some of the main contributors were lower cash distributions from Life's absolute return portfolio and Challenger also said there were lower management performance fees.
As a result of negative valuation movements, the Challenger statutory profit is expected to be $6 million for the half-year to December 2018. This included a $153 million decline in Life's investment assets.
Therefore Challenger reduced its FY19 guidance for normalised net profit before tax to be between $545 million to $565 million. If the result is somewhere in that range it would represent between a decline of 0.5% to growth of 3.2%. Those numbers aren't terrible, but it does represent a fairly sizeable decrease from the previous guidance of 8% to 12% growth.
Challenger's near-term growth prospects had also been reduced by the fact that the government delayed the 'MyRetirement' change until 1 July 2022.
It hasn't been a great year for Challenger, with the share price falling by 45%. A fall in asset values was always going to be a negative for Challenger's earnings in the short-term.
However, my investment thesis for Challenger was not based on what happened in FY18 or FY19, it was based on the growth to FY25 or FY30. So, a seemingly temporary setback doesn't alter my long-term thinking for Challenger.
Challenger is still exposed to the growing number of retirees, the slow-but-steady positive moves that make annuities seem more attractive to other assets and the growth of the superannuation pool.
Foolish takeaway
If you've been waiting to buy Challenger shares for a long time then this year could be the time to do it. I'm going to hold my shares and keep re-investing the dividend over the long-term because I still believe in its future – even more so at this lower price.
