Challenger Ltd (CGF) share price jumps 7% on profit, dividend result

The Challenger Ltd (ASX:CGF) share price traded 7% higher today following the release of its half-year financial report.

For context, the broader Australian share market or S&P/ASX 200 (ASX: XJO) was opened around 7012.5, less than 1% higher.

Challenger Ltd

Challenger is Australia’s largest provider of annuities. Annuities are financial products typically sold to retirees who seek reliable income.

Challenger was established in the mid-1980s and listed on the ASX in 1987. As of 2019, Challenger managed more than $80 billion between its investment portfolio, which is the sum of the money invested by retirees who buy annuities, and its fund management business.

Normalised V. Underlying Profit

In the Rask video above, I explain the difference between ‘underlying’ or ‘normalised’ results and ‘statutory’ results. Knowing the difference between these two numbers is essential to understanding many financial reports. For more free videos, subscribe to Rask Australia’s YouTube channel by clicking here – it’s free.

Challenger’s Key Results

This period Last period Change
Life sales ($b) 3.1 2.7 15%
Net profit 191 200 -4%
Cash flow 941 654 44%
Dividends 17.5 17.5 0%

Source: Challenger Ltd announcements; author calculations, millions AUD unless otherwise noted.

As can be seen above, Challenger’s life sales came in at $3.1 billion, up $0.4 billion. The company said this result reflected the company’s Japanese partnership as well as strong institutional sales here in Australia.

In the funds management business, assets grew to $86 billion, up 10%, with the company pointing to increased money flow from both retail and institutional investors.

Challenger’s net profit meanwhile was $191 million, down $9 million. However, using a ‘normalised’ and before-tax measure, Challenger delivered a before-tax profit of $279 million, up 3%.

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On the cash flow statement, which is an important financial statement since it represents the underlying health of a business, operating cash flow was $941 million, up $287 million.

Finally, dividends declared by the company stood at 17.5 cents, flat year over year.

What Happens Next?

Challenger CEO Richard Howes said the company is on track to meet its 2020 full financial year ‘normalised’ before-tax profit goal of between $500 million and $550 million.

“The ongoing execution of our carefully planned strategy, together with our response to industry disruption has put Challenger in a good position to optimise performance in the current environment,” Howes said in the company’s ASX release.

“We see a significant opportunity in engaging more directly with prospective customers and increase support for advisers to better meet customer needs.”

Challenger shares were last seen trading at $8.87, giving the company a market capitalisation more than $5 billion.

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