The Challenger Ltd (ASX: CGF) share price is up 6% after reporting its FY24 result to the market.
Challenger is the largest annuity provider in Australia, with a dominant market position in the space. This is where people, mainly retirees, can turn a lump sum into a guaranteed source of income.
FY24 result
Here are some of the main numbers from the 12 months to 30 June 2024:
- Lifetime annuity sales increased 110% to $1.5 billion
- Life sales of $9.1 billion
- Group assets under management (AUM) up 21% to $127 billion
- Normalised net profit before tax (NPBT) grew 17% to $608 million
- Statutory net profit after tax (NPAT) down 24% to $130 million
- Full-year dividend per share up 10% to $0.26
- Normalised return on equity (ROE) of 15.6%, up 290 basis points (2.90%)
Challenger pointed to a number of highlights of its growth strategy during the year.
It diversified its life sales channels, expanded its asset origination capabilities, extended its MS Primary (a Japanese business) partnership and progressed retirement income partnerships, simplified the business with the bank sale, and its scalable platform is now delivering ongoing cost efficiencies.
Management commentary
Challenger CEO and Managing Director Nick Hamilton said:
The success of our strategy to grow longer tenor, more valuable annuity sales is also supporting stronger returns. New business annuity sales tenor continued to materially improve to 8.5 years, which has led to a reduction in the maturity rate and will support future growth.
Funds Management also expanded its offering and capability, launching new investment strategies across Fidante, as well as driving private credit origination in Challenger Investment Management to meet growing demand for higher yielding income strategies.
We are in a very strong position for FY25 and beyond, with momentum across Life and Funds Management. We have a clear growth strategy that is orientated around the customer and leverages our core capabilities, underpinned by a strong balance sheet.
Outlook for the Challenger share price
In FY25, the business is targeting normalised net profit after tax (NPAT) of between $440 million to $480 million. The mid-point of this range represents a 10% increase on FY24. This equates to normalised NPBT guidance of between $640 million to $700 million.
Challenger’s platform is enabling the business to lower its cost to income ratio target range to 32% to 34% from FY25.
The ASX share also said it has made “significant progress” towards achieving its normalised ROE target and is on track to achieve its target in FY25.
I’d say this was a solid result by Challenger, with more growth expected in FY25. It may be good value, with good ageing demographic tailwinds, but there are some big unknowns that could have major impacts on the company in the coming years (such as interest rates), so I’m happy to watch from the sidelines.
