Challenger (ASX:CGF) share price sinks 10% following third quarter update

The Challenger Ltd (ASX:CGF) share price is sinking lower on Tuesday following the release of its third quarter update for FY 2021…

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The Challenger Ltd (ASX: CGF) share price has come under pressure following the release of its third quarter update.

In morning trade, the annuities company’s shares are down 10% to $5.90.

How did Challenger perform in the third quarter?

Challenger was on form again during the third quarter and delivered further growth across the business.

According to the release, group assets under management rose 8% for the quarter and now exceed $100 billion. This means Challenger is now Australia’s third largest active asset manager.

Supporting this growth was a 6% increase in Life investment assets. Management notes that this was driven by record quarterly annuity sales of $1.6 billion and record quarterly Life book growth of 9.2% for the quarter.

Also growing during the third quarter was its funds under management (FUM) for the Funds Management business. Challenger recorded a 9% increase in FUM, including $7 billion of net flows.

Challenger’s Managing Director and Chief Executive Officer, Richard Howes, was pleased with the quarter and notes that its strategy is paying off.

He said: “Challenger’s performance in the third quarter demonstrates our strategy to diversify revenue is working. We have been investing in our distribution, product and marketing capability over recent years which is extending our customer reach and diversifying our product offering and distribution channels.”

What does this mean for FY 2021?

Based on its performance in the third quarter, management appears confident the company will achieve its normalised net profit before tax guidance for FY 2021.

However, this is only expected to be at the bottom end of the $390 million to $440 million guidance range. This may be what is weighing on the Challenger share price today.

Management notes that its guidance reflects the sharp decline in credit spreads over the year, which were not fully reflected in customer pricing.

Positively, Challenger is responding to the investment conditions by significantly adjusting annuity pricing. However, this won’t be in time to impact its FY 2021 earnings.

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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. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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