The Challenger Ltd (ASX: CGF) share price has fallen 5% on Tuesday morning in early reaction to its FY23 full-year report.
Shares in the annuities business are currently trading at $6.60 a share, a drop of 5.17% on yesterday's closing price.
Challenger has reported its FY23 result for the 12 months to 30 June 2023. Let's check the results in more detail:
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Challenger share price falls on full-year result
- Record annuity sales, up 8%, contributing to life sales of $9.7 billion
- Domestic retail annuity sales, up 53% to $3.6 billion
- Normalised net profit before tax (NPBT) rose 10% to $521 million
- Statutory net profit after tax (NPAT) increased 13% to $288 million
- Full-year dividend increased by 4% to 24 cents per share
The company reported that its group assets under management (AUM) grew by 6% to $105 billion. It also said that its life book grew by 5.2%.
Challenger's normalised pre-tax return on equity (ROE) improved by 80 basis points (0.80%) to 12.7%, thanks to a 200 basis point (2%) improvement in Challenger Life's ROE. This was offset by lower earnings from the funds management and bank segments.
The funds management division saw average funds under management (FUM) fall by 9% to $95 billion, while the earnings before interest and tax (EBIT) dropped 26% to $62 million because of the lower average FUM and higher expenses.
The ASX financial share is working on improving the quality of the life book through growing longer duration business. It revealed that within Challenger Life, 74% of new business annuity sales were greater than two years, which will help support book growth in FY24.
Japanese (MS Primary) annuity sales increased 20% to $741 million, which was higher than the minimum agreed annual target.
What else happened in FY23?
Challenger talked about the progress it has made on a number of strategic partnerships.
MS&AD and Challenger are working on a number of new initiatives, including real estate and fixed-income asset management mandates. Challenger also extended its "highly successful" reinsurance agreement with MS Primary and will start reinsuring Japanese yen-denominated annuities in the first half of FY24.
During FY23, Challenger and Apollo agreed to expand their partnership with Challenger's Fidante bringing the Apollo Aligned Alternatives capability to the Australian market in the first half of FY24.
Finally, the annuities company launched Artega Investment Administration with Simcorp to provide "market-leading investment administration services to investment managers and asset owners across Australia".
Artega has already won a number of new external clients that will transition to its platform in the first half of FY24, as well as existing client relationships with Challenger and Fidante affiliates.
What did Challenger management say?
Challenger managing director and CEO Nick Hamilton said:
With the Australian savings market firmly focused on retirement, there is a significant growth opportunity for us to support superannuation funds to develop retirement income solutions to help meet their members' needs.
Through our new strategic partnerships with Aware Super and TelstraSuper, we will leverage our expertise and market-leading investment capability to develop retirement and longevity solutions for their members.
As we look to the future, we are uniquely positioned to seize the growth opportunity ahead. We have a clear and compelling strategy that our team are focused on executing. New and emerging channels will broaden our customer reach, and significant demographic and regulatory shifts are in our favour which will help us deliver an exciting growth agenda.
Outlook
The company provided guidance to the market, which could be an influence on the Challenger share price.
For FY24, it's targeting normalised net profit before tax of between $555 million to $605 million. The mid-point of this guidance range reflects an 11% increase compared to FY23. This guidance for FY24 excludes Challenger Bank, with the sale of this business expected to complete in the first half of FY24.
Challenger share price snapshot
Over the last 12 months, the Challenger share price has dropped by 6.7%, which compares to a 3% rise for the S&P/ASX 200 Index (ASX: XJO).
