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Challenger share price pushes higher on first quarter update

In morning trade the Challenger Ltd (ASX: CGF) share price has pushed higher following the release of its first quarter update.

At the time of writing the annuities company’s shares are up 4.5% to $7.16.

How has Challenger performed in the first quarter?

This morning Challenger released its first quarter update and revealed a 3% lift in total assets under management (AUM) to $84 billion. This was driven by a combination of net flows across the business and positive investment markets.

In addition to this, the company reported total annuity sales of $842 million for the quarter. This is a 14% increase on the previous quarter. However, it is worth noting that this is a sizeable 28% decline from the same period last year.

A sharp decline in Australian annuity sales was to blame. They are down 11% since the fourth quarter or almost 42% over the prior corresponding period to $624 million. This offset a 26% quarter on quarter increase in Japanese annuity sales to $180 million.

Management blamed the decline in Australian annuity sales on the disruption in the retail financial advice market following the Royal Commission.

It said: “This has resulted in a significant reduction in financial adviser numbers and increased movement by advisers across licensees. Major advice hubs have also been subject to client remediation projects and in some cases business sales and restructures. This has led to lower new client acquisitions which is impacting Challenger annuity sales.”

One positive was a $737 million quarter on quarter increase in Other Life sales to $936 million. These products represent institutional Guaranteed Index Return and Challenger Index Plus products.

This growth was driven by strong demand from superannuation fund clients seeking guaranteed returns in the low interest rate environment.

FY 2020 guidance.

Management advised that it continues to target a normalised net profit before tax of between $500 million and $550 million in FY 2020. This is unchanged from the guidance provided in August 2019.

It also explained that investment market conditions, including base interest rate levels, are consistent with the assumptions underpinning its guidance.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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.