The Challenger Ltd (ASX: CGF) share price is in the green at lunchtime trading today. At the time of writing the share price is 1.77% higher and changing hands at $8.61 a piece. Over the year, the ASX 200 company's shares have traded 15.88% higher.
For context, the S&P/ASX 200 Financials Index (ASX: XFJ) is 1.62% higher today, and 19.09% higher than 12 months ago.
What has driven the stock price rise?
Challenger posted its FY25 financial results yesterday morning, driving a spike in interest from investors.
The ASX 200 company revealed a 9% year-on-year increase in normalised net profit after tax (NPAT) and a 48% jump in statutory NPAT. Its normalised basic earnings per share (EPS) was above target at 11.8%. It also announced a full-year dividend of 29.5 cents per share, fully franked.
Macquarie's stance on the ASX 200 stock
This morning, in a recent note to investors, Macquarie Group Ltd (ASX: MQG) confirmed its outperform rating on Challenger shares. It also raised its 12-month target price to $9.60, up from $9.30 just last month.
The new target price represents a potential 11.5% increase at the time of writing.
"Valuation: 12-month price target raised 3% to A$9.60 (from A$9.30), based on a blended DCF/GG/BV methodology," the broker said in its note.
"Outperform. Buybacks and an additional Japanese distribution partnership are in our numbers, but we acknowledge a shortage of fundamental catalysts in the short term."
What else did the broker have to say about Challenger's FY26 guidance?
The broker is "slightly disappointed" by Challenger's FY26 guidance. The company revealed normalised NPAT guidance of $455 million to $495 million, which missed consensus estimates by 1% to the midpoint.
Macquarie also said that Challenger's cost-to-income (CTI) guidance of 32%-34% also disappointed, "although this appears conservative, in our view".
The broker added, "[We] anticipated maturity rates of 23% continue to slow (24% in FY25), reflecting the longer tenor of liabilities issued, which is pleasing given the greater ability to generate excess spread."
"The payout ratio range of 30-50% remained. We note CGF has a history of payouts below the mid-point of its range, and this is unlikely to change until the full-year FY26E result, in our view – which could align with the APRA capital changes."
The broker also added that long-term investors will need to wait another 6-12 months for big catalysts. Challenger has an upcoming investor day on 16 September, its Q1 FY26 update is due on 16 October, and the company's AGM is scheduled for 30 October 2025.
