The Challenger Ltd (ASX: CGF) share price will be on watch this morning following the release of its half year results.
How did Challenger perform in the first half?
For the six months ended December 31, Challenger reported group assets under management of $86 billion. This was a 10% increase on the prior corresponding period.
The main driver of this growth was its Total Life sales. They increased 15% on the prior corresponding period to $3.1 billion.
Management advised that this reflects a strong contribution from Challenger's Japanese partnership and Australian institutional sales, which was offset partly by lower domestic sales due to ongoing industry disruption.
On the bottom line, Challenger reported a 4% decline in normalised net profit after tax to $191 million due to a higher effective tax rate. This led to the company recording a normalised return on equity of 15.2% in the first half. This is 30 basis points above its target.
The company's statutory net profit after tax was up a sizeable $214 million to $220 million. This includes positive investment experience of $38 million, which is the valuation movements on assets and liabilities supporting the Life business. In the prior corresponding period the company's investment experience was a negative $194 million due to lower equity markets and wider fixed income credit spreads.
The Challenger board declared a fully franked interim dividend of 17.5 cents per share, which was unchanged from a year ago.
Well-positioned.
Challenger's managing director and chief executive officer, Richard Howes, was pleased with the half.
He said: "The ongoing execution of our carefully planned strategy, together with our response to industry disruption has put Challenger in a good position to optimise performance in the current environment."
"Challenger continues to prove to be resilient. Our business model, leading brand and diversified distribution have ensured we can continue to deliver solid earnings despite significant and ongoing challenges in our operating environment," he added.
Outlook.
Mr Howes revealed that Challenger is on track to achieve the top end of its FY 2020 normalised net profit before tax guidance range of $500 million to $550 million.
It is also on track to achieve its normalised return on equity target of the RBA cash rate plus a margin of 14%.
In respect to dividends, the company advised that it expects to pay out a full year fully franked dividend of 35.5 cents per share. This will be unchanged from a year earlier and is above the target dividend payout ratio of 45% to 50% of normalised net profit after tax. Management explained that this reflects Challenger's strong capital position and confidence in future growth.
