Challenger Ltd

Resilient & well positioned for the future: Challenger Ltd (ASX: CGF) has published its results for the first half year ending 31 December 2018 (1H FY19). As per the report, the company reported normalised net profit before tax was $270 million, down 2% on the pcp. Earnings were impacted by investment market volatility resulting in lower asset returns in the Life business and lower Funds Management performance fees.
 
The company’s capital position was aided by lower capital intensity within the Life’s investment portfolio, which witnessed the decline from 14.1% to 13.0%.
 
What to Expect From CGF: The company has revised its expected normalised NPBT range from $591.0 million to $613.0 million and now expects normalised net profit before tax of between $545 million and $565 million.
 
The lower expectation reflects the first half of FY2019 normalised net profit before tax and flow on into 2H19 and changes to Life investment portfolio resulting in lower capital intensity.
 


CGF’s Excess Regulatory Capital (Source: Company Reports)
 
The company has a ROE of 10.10 % which is at par with the industry median. Also, the price to book ratio is at 1.3x for the trailing 12 months, while the Insurance industry trades at 1.9x, hence the stock seems to be bit undervalued at the current juncture.

Meanwhile, the stock price has fallen by 35.14% over the past six months and trading close to 52-week lower level. Hence, considering the company’s ROE which is in line with the industry median and current trading level, we maintain our “Hold” rating on the stock at the current market price of $7.290 (down 1.619% on 15 February 2019).
 

Magellan Financial Group Limited

Focussed towards expansion of the retail business: Magellan Financial Group Limited (ASX: MFG) has recently disclosed that the Average funds under management up 35% to $72.1 billion in 1HFY19 over the prior corresponding period. This performance was underpinned by strong investment performance in volatile market conditions as well as strong inflows. The company’s adjusted net profit after tax was up 62% on pcp & came in at $176.3 million.

The company witnessed a fall in the expenses of 4% and stood at $48.3 million. However, the revenues of Funds Management business witnessed a rise of 45% and stood at $273.2 million.


1HFY19 Financial Summary (Company Reports)
 
What to Expect From MFG: Going forth, the company will keep on maintaining its focus on the expansion of the retail business across sectors & would be implementing an alternative market strategy to reach this group of investors. The management believes that the capacity of its global listed infrastructure strategies is approximately US$15 billion.
 
The company’s EBITDA margin and Net margin of 78.0% and 47.0% respectively in FY18 as compared to the industry median of 62.60% and 30.9% respectively. Further, the company is generating better returns for its shareholders than its peers as it reported a ROE of 39.7% above the industry median of 10.30%.

Meanwhile, if we look at the past six month’s performance, the stock has surged by 20.52% and trading slightly towards 52-week higher level. Hence considering the robust ROE’s and in the anticipation of expansion in retail clientele we maintain our “Hold” rating on the stock at the current market price of $32.600 per share (up 1.589% on 15 February 2019).
 

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