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Challenger share price on watch after reaffirming guidance for FY 2020 despite the COVID-19 pandemic

The Challenger Ltd (ASX: CGF) share price will be on watch this morning after the release of its third quarter update.

How has Challenger been performing?

The annuities company had a reasonably positive third quarter all things considered.

For the three months ended March 31, Challenger’s Life sales were up 9% on the prior corresponding period to $949 million. This was driven by a 10% increase in total annuity sales to $593 million and a 71% lift in Other Life sales to $356 million.

Management advised that this sales growth reflects strong demand for its products in Japan and from institutional investors.

Things weren’t quite so positive for its Life investment assets, which fell 4% during the quarter. It was a similar story for its Fund Management business. It recorded net outflows of $2.3 billion during the quarter.

And finally, Challenger’s total assets under management (AUM) were down 8% to $79 billion. Management blamed this on the significant investment market sell-off in March.

The company’s managing director and chief executive officer, Richard Howes, appeared pleased with the resilience of the Challenger business during the COVID-19 pandemic.

He said: “The drop in AUM includes the effect of major market movements in the period as well as some redemptions in funds management as superannuation funds seek liquidity to fund members switching to cash and withdrawing funds.”

“Considering the extreme disruption, Challenger’s sales were relatively resilient, largely due to the diversification built through the partnership with the MS&AD Group in Japan and institutional relationships. Our Funds Management business also benefited from strong equity inflows as large superannuation funds and other investors rebalanced their portfolios, with Fidante Partners FUM down 11%, which compares favourably with industry averages during this period,” he added.

Guidance reaffirmed.

Pleasingly, this decent performance means that management has been able to reaffirm its guidance for FY 2020.

It continues to expect normalised net profit before tax in the range of $500 million and $550 million this year.

This guidance includes the impact of recent changes to Life’s investment portfolio and lower Funds Management earnings from reduced funds under management following the equity market sell-off.

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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.

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