Challenger Limited

CGF Details

A Look at 1H21 Results: The Challenger Limited (ASX: CGF) engages in key activities related to two operating segments -Funds and Life Management. As on 9 February 2021, the market capitalisation of the company stood at ~$4.87 billion. The company reported assets under management to the tune of $96.1 billion, up by 11.3% on the pcp basis for 1H21. CGF earned $1,289.5 million revenue for 1H21 vs 1,222.2 million for 1H20. For 1H21, the company experienced increase in sales across all key Life product categories and with total life sales up by 9.5% at $3,437 million. Its total FM net flows rose to $6.4 billion and total AUM expanded to $96.1 billion (11.3% YoY) for 1H21, both higher on pcp basis. It earned a steady profit after tax for 1H21 of $222.8 million ($222.2 million for 1H19). The company declared an interim dividend of 9.5 cents per security fully franked for 1H21.

Highlights (Source: Company Reports)

Outlook: CGF’s Funds Management division plans to focus on building savings for retirement by offering investment strategies to deliver higher ROI. For Life division, CGF expects to continue to gain from the long-run growth in Australia’s superannuation system and regulatory changes to expand the retirement phase.

Valuation Methodology: Price to Book Value Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of CGF gave a positive return of 13.88% in the past three months and a positive return of 53.36% in the past six months. The stock is currently trading below the average of its 52-weeks’ trading level. The stock of CGF has a support level of ~$5.709 and a resistance level of ~$6.634. We have valued the stock using Price to Book Value based illustrative relative valuation method and have arrived at a target price of double-digit upside (in % terms). We believe that the company can trade at a discount as compared to its peer median, considering impact of COVID-19 on the investment climate, exposure to Investment, pricing and counterparty Risk.  For the purpose, we have taken peers like IOOF Holdings Limited (ASX: IFL), AMP Limited (ASX: AMP), to name a few. Considering the current trading levels, decent results of 1H21, expanded AUM, growth across Life products in 1H21, interim dividend declared for 1H21, and valuation, we give a ‘Buy’ rating on the stock at the current market price of $6.150, down by 14.820% on 9^th February 2021.

CGF Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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