The Challenger Ltd (ASX: CGF) share price is down around 7% after the annuity business reported its FY25 half-year result.
Challenger is the market leader in providing annuities in Australia, which turns a lump sum into a source of income.
Challenger HY25 result
Here are some of the highlights from the company’s half-year year result for the six months to 31 December 2024:
- Assets under management (AUM) increased 3% in the half to $131 billion
- Total life sales of $4.6 billion
- Normalised net profit after tax (NPAT) increased 12% to $225 million
- Statutory net profit rose 28% to $72 million
- Normalised return on equity (ROE) up 120 basis points (1.20%) to 11.6%
- Interim dividend up 12% to $0.145 per share
What happened in this period?
The business reported good growth in a number of areas. It achieved record retail lifetime annuity sales of $583 million (up 24%) and record Japanese sales of $616 million (up 78%).
The life division’s net profit increased 7% to $225 million, driven by growth in AUM and cash operating earnings. This is important for the Challenger share price, in my view.
Challenger said it has remixed its life book to longer-term annuity sales. The new business annuity sales length was 6.4 years. The company said it achieved new credit asset origination capability and re-platformed customer and investment technology to enable the next phase of growth.
The company also noted it’s making progress in building its pipeline of retirement income partnerships and ‘defined benefit’ opportunities.
As the company deepens its relationship with advisers and reflecting the strength of its offering, the number of quotes for Lifetime and CarePlus products increased 21% year on year.
The company also launched its new website, which will deliver an improved customer and adviser experience.
In September 2024, Challenger appointed State Street to provide investment administration and custody services.
Outlook for the Challenger share price
The company reaffirmed its FY25 normalised net profit after tax guidance of between $440 million to $480 million, with the mid-point of the range, representing 10% growth on FY24.
Challenger is an interesting business, exposed to the strong tailwinds of an ageing population and growth of retirement assets thanks to compounding.
However, the company hasn’t delivered strong returns for shareholders over the years – it’s a complicated business. For me, there are other businesses that are simpler to understand and aren’t so influenced by interest rate changes and an increasingly difficult task of producing good investment returns as it becomes larger.
