Challenger Limited Reports Strong Annuity Sales and Expects Higher Profits

Challenger Limited, an Australian financial services firm, reports strong quarterly performance, with annuity sales up 37% and AUM growing 6%. Analysts remain bullish on the company's growth prospects in the annuity market.

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Geeta Pillai
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Challenger Limited Reports Strong Annuity Sales and Expects Higher Profits

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Challenger Limited, an Australian financial services company specializing in annuity products, has reported strong quarterly performance in its recent trading update. The company's total Life sales reached $1.7 billion, with lifetime annuity sales increasing by 37% to $202 million. Challenger's assets under management (AUM) also grew by 6% for the quarter, reaching $124 billion.

As a result of this strong performance, Challenger expects its normalised net profit before tax to be at the top end of its $555 million to $605 million guidance range for the 2024 fiscal year. The company's annuity products provide investors with guaranteed regular payments over an agreed term in exchange for an upfront lump sum investment, designed to protect investors from the risk of outliving their savings.

Goldman Sachs, a broker, has reiterated its 'buy' rating and $7.50 price target on Challenger's shares, implying a potential upside of approximately 14%. The broker cites several reasons for its bullish stance, including improved contribution from the company's Funds Management (FM) business, expanding cost of equity (COE) margins, and the potential for the company to reach its return on equity (ROE) target in the near term. Goldman Sachs is also expecting reasonably attractive dividend yields from Challenger in the coming years.

Why this matters: Challenger Limited's strong performance and positive outlook highlight the growing demand for annuity products in the Australian and Japanese retirement markets. As an increasing number of retirees seek stable income streams and protection against longevity risk, companies like Challenger are well-positioned to benefit from this trend.

Challenger Limited's market cap currently stands at $2.87 billion, with a P/E ratio of 19.34. Other analysts, such as Macquarie's Damian Thong and UBS's Scott Russell, have a hold, limited while Jarden has maintained a Buy rating. TipRanks has also tracked insider trading activities related to Challenger Limited. With the company's strong quarterly performance and positive broker outlook, Challenger Limited appears to be well-positioned for growth in the annuity market.

Key Takeaways

  • Challenger Ltd reported strong Q4 performance, with Life sales of $1.7B and 37% growth in annuity sales.
  • Challenger's AUM grew 6% to $124B, and the company expects FY2024 profit to be at the top end of guidance.
  • Goldman Sachs reiterated a 'buy' rating and $7.50 price target, citing improved FM business, COE margins, and ROE.
  • Challenger's strong performance highlights growing demand for annuity products in Australia and Japan retirement markets.
  • Challenger has a market cap of $2.87B, P/E of 19.34, and positive broker outlook for growth in the annuity market.