The Challenger Ltd (ASX: CGF) share price is sliding in lunchtime trade, down 3.7% to $7.25 per share.
Shares in the financial services company lost 0.4% yesterday, following its investor day presentation.
Those losses came despite the company reporting its normalised net profit after tax (NPAT) guidance for the 2022 financial year was likely to be at the higher end of its $430 million to $480 million guidance estimate.
With the Challenger share price down another 4% today, is it a buy?
An ASX share to benefit from rising rates
While some sectors are facing significant headwinds from rising interest rates – we're looking at you ASX tech shares – others can benefit from higher rates.
Indeed, the Challenger share price could be one to get a lift, as rising yields from its annuity products are likely to attract fresh interest from retirees and other income investors.
So, are Challenger shares a buy?
According to UBS, yes.
Citing benefits from a rising interest rate environment – following record low rates during the pandemic years – the broker lifted its price target and upgraded Challenger to buy.
UBS said (courtesy of the Australian Financial Review) that Challenger was "on the cusp of a material rebound in life profitability".
UBS head of insurance and diversified financials Scott Russell said:
It is not clear to us that consensus has fully factored this in. This has also addressed our previous concern that the group's ROE [return on equity] was below its cost of equity, eroding shareholder value. We have lifted our price target and upgrade to a buy rating.
Challenger share price snapshot
The Challenger share price has been a strong performer, up almost 6% year-to-date and 44% higher over the past 12 months.
That compares to a year-to-date loss of 5.4% posted by the S&P/ASX 200 Index (ASX: XJO), while the ASX 200 is up 1.0% over the 12 months.
Challenger shares pay a 2.9% trailing dividend yield, fully franked.
