Challenger share price rockets 10% on half-year earnings

ASX investors are pleased with the investment manager's 16% profit boost in 1H FY24.

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The Challenger Ltd (ASX: CGF) share price ripped 10% higher in early trading and is the leading stock of the ASX 200 at the time of writing on Tuesday.

It seems that ASX investors are receiving the investment manager's FY24 half-year results with glee.

The Challenger share price opened at $6.88 and quickly rose to a high of $7.23, up 9.88% on yesterday's close. It is now trading at $7.10, up 7.9%.

Let's check out the report.

Challenger share price leaps on news of 16% profit boost

Here are the highlights for the six months ending 31 December 2023:

  • Normalised net profit before tax (NPBT) of $290 million, up 16% on the prior corresponding period (pcp) of 1H FY23
  • Statutory net profit after tax (NPAT) of $56 million, up 80% pcp
  • Total assets under management (AUM) $117 billion, up 18%
  • Normalised pre-tax return on equity (ROE) of 15%, up 270 basis points
  • Interim dividend 13 cents per share fully franked, up 8% pcp.

What else happened in 1H FY24?

Challenger said it is making significant progress in executing its growth strategy.

Life book growth and strong funds management net inflows lifted the AUM by 18%.

Its retirement income business, Challenger Life, recorded $5.3 billion in sales and a 330 basis-point increase in ROE.

Challenger achieved a record in new business annuity sales of $1.9 billion, up 19% on last year.

CEO Nick Hamilton said this demonstrated Challenger's focus on driving more profitable, longer-duration
business, with 90% of new business annuity sales for terms of two years or more.

"This in turn is extending the tenor of our Life book, which will support higher, longer term profitability," he said.

The sales tenor averaged 8.9 years in 1H FY24 compared to 5.4 years in 1H FY23.

Lifetime annuity sales also went up by 190% to $1.1 billion.

What did Challenger management say?

Hamilton commented that Challenger's opportunity in the Australian retirement sector "is extraordinary".

Australia is now firmly focused on strengthening the retirement phase of superannuation. As more Australians live longer and retire in ever greater numbers, there will be more demand, across more channels for a broader range of retirement income solutions.

Hamilton said Challenger has positioned itself to take advantage of this over the past two years.

… our achievements in the first half of 2024 demonstrate that we are now delivering on that opportunity.

In Life, we are driving growth across a broader range of channels, including deepening our relationships with superannuation funds.

Our retirement partnership with Commonwealth Super Corporation and the launch of TelstraSuper's lifetime pension, designed in partnership with Challenger, demonstrate our expertise in developing retirement and longevity solutions that address the specific needs of members in retirement.

What's next for Challenger?

Challenger reaffirmed its FY24 normalised net profit before tax guidance of $555 million to $605 million.

The company said it expects to reach the top half of that guidance.

The guidance range excludes Challenger Bank, which has been sold.

Challenger expects the sale to be completed in 2H FY24, subject to regulatory approvals.

Challenger share price snapshot

The Challenger share price is down by 2.2% over the past 12 months.

This compares to a 2.7% increase for the S&P/ASX 200 Index (ASX: XJO).

Motley Fool contributor Bronwyn Allen 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. 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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