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Challenger shares spike despite weakened NPAT

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Challenger’s share price has peaked at its highest amount in the past 12 months following release of the wealth group’s half-year results, despite its profit diminishing by 4 per cent from the previous corresponding period.

On Tuesday, Challenger posted a net profit after tax (NPAT) of $191.4 million for the half year, saying it had sought to reshape itself in response to a shifting Australian wealth management market.

However, strong growth in the group’s assets had seen a boost of 3 per cent year-on-year in its normalised net profit before tax of $278.6 million for the six months leading up to 31 December.

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Group assets under management were $86 billion, up by 10 per cent from 1H19. 

The company’s share price spiked to $10.10 on Tuesday, a fair jump from its previous tops in the past 12 months of around $8.80. On Monday afternoon, it was $8.88.

In the Life business, Challenger’s expansion into Japan had salvaged its domestic sales, which continued to be lowered by disruptions to the Australian advice landscape.

Total Life sales were up by 14.6 per cent to $3.1 billion, with its EBIT of $286 million up by 3 per cent. Total annuity sales were down by 5.8 per cent to $1.9 billion, including domestic sales of $1.5 billion (down by a quarter) and Japanese sales by MS Primary of $500 million (more than doubling). 

Lifetime annuity sales were $200 million (down $200 million), which Challenger said was impacted by changes to the age pension means test rules, introduced in July last year.

But other Life sales soared by 97 per cent to $1.2 billion, a show of strong demand from institutional clients for guaranteed returns in a low interest environment, Challenger noted.

The funds management segment however, saw “exceptional” retail flows and boosted earnings from its institutional inflows, with net flows of $1.9 billion for the half.

EBIT for Challenger’s funds management was up by 7 per cent to $28 million, driven by an increase in average funds under management (FUM), up 5 per cent to $81.1 billion.

During the half, the group commenced a new arrangement with MS Primary to reinsure US dollar annuities in Japan, along with having added new partners in its funds management business, including its joint venture with Ares Management Corporation (Ares Australia Management). 

The group has reacted to the local wealth management market being in flux by investing $15 million in new distribution, product and marketing initiatives.  

Managing director and chief executive Richard Howes said the company is on track to achieve its 2020 full-year guidance for its net profit before tax, in the range of $500 million to $550 million. 

“This ongoing execution of our carefully planned strategy, together with our response to industry disruption has put Challenger in a good performance to optimise performance in the current environment,” Mr Howes said.

“Challenger continues to prove to be resilient. Our business model, leading brand and diversified distribution have ensured we can continue to deliver solid earnings despite significant and ongoing challenges in our operating environment. We see a significant opportunity in engaging more directly with prospective customers and increase support for advisers to better meet customer needs.”

 

Challenger shares spike despite weakened NPAT
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Sarah Simpkins

Sarah Simpkins

Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth. 

Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio. 

You can contact her on [email protected].

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