Changes are happening - please bear with us while we update our site.

Changes are happening - please bear with us while we update our site.

FY21 result: The Challenger (ASX:CGF) share price is in focus

The Challenger Ltd (ASX:CGF) share price is on watch after delivering its FY21 result to the market and providing FY22 guidance.

The Challenger Ltd (ASX: CGF) share price is on watch after delivering its FY21 result to the market.

Challenger is an investment management focused on providing customers with financial security for retirement. It is Australia’s largest provider of annuities.

What did Challenger report in FY21?

The annuity business said that its total group assets under management (AUM) grew by 29% to $110 billion.

Total annuity sales increased by 46% to $4.6 billion, whilst total life sales rose by 35% to $6.9 billion. A very solid year for annuity sales. The life book saw an increase of 14.4%.

FY21 funds management EBIT (EBIT explained) increased by 23%, supported by higher fee income and lower expenses.

But the growth in annuity sales wasn’t enough to stop the business seeing a sizeable fall in underlying profit.

Normalised profit before tax fell by 22% to $396 million. Normalised net profit after tax dropped 19% to $279 million.

But, including the investment returns that Challenger saw during the 2021 financial year, statutory net profit rose from a loss of $416 million in FY20 to a profit of $592 million.

A couple of Challenger’s key ratios went in the wrong direction. Normalised return on equity (ROE) – how much profit it makes on shareholder funds in the business – fell from 14.8% to 11.2%. The normalised cost to income ratio rose from 35.7% to 41.2%.

FY21 dividend increase

The Challenger board decided to increase the full year dividend by 14.3% to 20 cents per share. That’s a payout ratio of just under half of the normalised profit/earnings per share (EPS) which was 41.5 cents (which had fallen 27% in the year).

FY22 outlook and thoughts on the Challenger share price

Challenger is expecting to achieve strong profit growth in the new financial year, with a normalised net profit before tax of between $430 million to $480 million. The middle of that guidance range, being $455 million, would represent growth of 15%.

The company continues to target a dividend payout ratio of between 45% to 50% of normalised net profit before tax.

Part of its long-term plan for growth is to provide one in five Australian retirees with improved financial outcomes and to be the partner of choice for institutions and advisers, by 2030.

The acquisition of the bank MyLife MyFinance is an important part of this strategy and gives Challenger the opportunity to diversify its product offering further. It also accelerates the company’s plans to build relationships directly with customers.

At the pre-open share price, Challenger could be a decent option for income over the long-term with its dividend. However, I’m unsure about the company’s long-term profit potential, particularly with interest rates so low.

There are other ASX dividend shares I’d rather look at for income.

$50,000 per year in passive income from shares? Yes, please!

With interest rates UP, now could be one of the best times to start earning passive income from a portfolio. Imagine earning 4%, 5% — or more — in dividend passive income from the best shares, LICs, or ETFs… it’s like magic.

So how do the best investors do it?

Chief Investment Officer Owen Rask has just released his brand new passive income report. Owen has outlined 10 of his favourite ETFs and shares to watch, his rules for passive income investing, why he would buy ETFs before LICs and more.

You can INSTANTLY access Owen’s report for FREE by CLICKING HERE NOW and creating a 100% FREE Rask Account.

(Psst. By creating a free Rask account, you’ll also get access to 15+ online courses, 1,000+ podcasts, invites to events, a weekly value investing newsletter and more!)

Unsubscribe anytime. Read our TermsFinancial Services GuidePrivacy Policy. We’ll never sell your email address. Our company is Australian owned.

Information warning: The information on this website is published by The Rask Group Pty Ltd (ABN: 36 622 810 995) is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169.

At the time of publishing, Jaz does not have a financial or commercial interest in any of the companies mentioned.
Skip to content