Investment Matters

Challenger

As we have come to consider the norm for Challenger, the company delivered a good result for the half year ending 31-Dec-15.

The company’s life division (the largest of their two divisions, focused on retirement annuities) grew earnings 15%.  However, retail annuity book growth moderated somewhat (impacted by the discontinuation of a particular product called Care Annuity), but was still +3.1%.  Additionally, the average annuity length decreased from 6.6 years to 5.6 years - we would like to see this reverse as long duration annuities add more value.  Positive developments have been made in relation to widening the distribution of annuities to platforms such as Colonial First State and VicSuper.

The Life division has excess capital available to support future growth.  We expect demand to continue to increase in coming years as demographics push more people into the typical annuity purchasing years (68-70 years old) and government regulatory change (positive for Challenger) becomes more and more warranted.

Challenger’s Funds Management division grew earnings by 5%, including a strong contribution from the company's boutique funds.  Funds under management increased 4% (excluding Kapstream).  Profit from the partial sale of the Kapstream boutique was not included in the underlying figures below, as it is a one-off event.  However, it made a strong profit contribution, and is expected to bring distribution benefits.

Overall, company profit increased 17.6% and the dividend increased 10.3% versus H1 FY-15.

Challenger remains one of our long-term core holdings - favourable demographics and increasing superannuation balances, along with a need for retirement income solutions (along with likely positive regulatory developments) provide an attractive growth opportunity.  A meaningful dividend is also provided. 

Challenger HY