‘Exciting opportunity’: Why the Challenger share price just leapt 8%

The financial services company’s earnings appear robust for the quarter.

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Key points

  • Challenger shares are walking higher today after the company's quarterly update
  • The group saw a jump in income all the way from revenue down to profit at the bottom line
  • In the last 12 months the Challenger share price has climbed 31%

Shares in Challenger Ltd (ASX: CGF) are charging north today and are now trading 8.2% higher at $7.39 apiece.

The Challenger share price is on the move after the financial services company released its quarterly results for the third quarter of FY22.

TradingView Chart

Challenger grows sales by 10%, confirms guidance

Key takeouts from Challenger’s quarter include:

  • Life sales of $2.7 billion, up 10% for the quarter
  • Life book growth of $500 million, or 2.8%, for the quarter
  • Funds under management (FUM) at $100 billion, down 3% for the quarter excluding the derecognition of Whitehelm Capital following its sale
  • Group assets under management (AUM) of $106 billion
  • Normalised net profit before tax expected to be towards the upper end of $430 million to $480 million FY22 guidance range

What else happened this quarter for Challenger?

Challenger said that Total Life net flows were $491 million for the quarter. This included annuity net inflows of $286 million and inflows of $205 million to its Other Life segment.

Further, sales to institutional clients grew by 10% to $2.1 billion during the period. Growth was underscored by “strong Challenger Index Plus sales of $1.1 billion (up 30%) and institutional term annuity sales of $1.0 billion”.

Excluding its sale of Whitehelm Capital, FUM reduced by 3% for the quarter, and included “negative investment market movements of $1.9 billion and net outflows of $1.7 billion,” Challenger says.

The group also left the quarter well capitalised with 1.65 times the minimum amount of ‘prescribed’ capital set by the Australian Prudential Regulation Authority (APRA).

Management commentary

Speaking on the announcement fuelling the Challenger share price today, managing director and chief executive officer Nick Hamilton said:

Challenger is a unique business with an exciting opportunity to meet the needs of more customers. This quarter, our business continued to perform well, highlighting the benefits of our diversification strategy.

The Life business maintained its impressive performance, with book growth of 2.8% for the quarter. Sales growth exceeded 10% across both institutional and retail, reinforcing the success of our strategy to extend our customer reach and broaden our distribution channels.

Product innovation remains a key priority and our market-linked annuity reflects our commitment to meeting the needs of more customers. The market-linked annuity has now been added to approved product lists of key financial advice businesses and initial feedback and engagement from financial advisers has been positive.

What’s next for Challenger?

Challenger reiterated its FY22 normalised net profit after tax (NPAT) guidance. It now expects NPAT to fall at the upper end of the $430 million to $480 million guidance range.

“Challenger remains on track to achieve full-year profit guidance and now expects to be towards
the upper end of the range,” Hamilton added.

“As we look to the future, we are well placed to continue our growth trajectory, meet the needs of
more customers, and deliver on our purpose to provide financial security for a better retirement.”

Challenger share price snapshot

In the last 12 months, the Challenger share price has climbed 31%. It is also up 12% this year to date, and 5% over the past month.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia 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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