The S&P/ASX 200 Index (ASX: XJO) share Challenger Ltd (ASX: CGF) has seen its stock price fall well below $6.30 once again. In fact, it's been hovering between that mark and $6.00 since last October and is trading at $6.07 at the time of writing.
This is curious, considering what the ASX financial share has recently achieved and what is expected of it.
Challenger's stock price has declined more than 20% since January 2023. According to broker UBS, this is despite projections that the business could make more profit in FY25 than in each of the last three financial years.
Challenger's FY25 first quarter update demonstrated very good growth for some areas of the business and could help the company rise in the future if those trends continue. Let's remind ourselves what the ASX 200 share recently said.
Quarterly recap
The company reported total life sales of $2.4 billion, with Japanese sales of $244 million (up 74%) and retail lifetime annuity sales of $275 million (up 26%).
Challenger 'index plus' sales jumped 55% to $1.1 billion, while fixed-term annuity sales dropped 28% to $839 million.
The business's group assets under management (AUM) grew by 1% to $128 billion for the three months to December 2024.
In addition, Challenger announced a partnership with State Street to provide investment administration and custody services that will "deliver operating efficiencies and support future growth."
At the time of the quarterly update, Challenger reaffirmed its FY25 normalised net profit after tax (NPAT) guidance of between $440 million and $480 million.
Is the ASX 200 financial share set to soar?
After the quarterly update was released, broker UBS said Challenger's underlying sales quality "continues to improve". The broker then noted:
With maturity rates set to improve into 2H25E and lengthening sales duration suggesting further tailwinds into FY26E, we expect improved net book growth ahead.
In other words, it estimates net book growth in the second half of FY25 and into FY26.
UBS is forecasting that Challenger's net profit and dividend could rise by approximately 10% in FY26 and then another 10% in FY27. That's a pleasing growth rate considering the company's current price/earnings (P/E) ratio.
On UBS' numbers, Challenger is trading at 10.7x FY25's estimated earnings and under 10x FY26's estimated earnings. It's also projected to pay a grossed-up dividend yield of 7% in FY25, including franking credits.
The broker currently has a price target of $7.90 on the business, which implies that UBS thinks the ASX 200 share could rise by 30% in less than 12 months. If that happened, I think it'd likely be a market-beating performance.
