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Challenger Reports at Top End of Forecasts

Challenger Reports at Top End of Forecasts
Aug 18, 2015 By Ben Visser

Challenger Limited (ASX:CGF) released it’s full FY15 results to the market this morning. The company reported strong sales and growth in assets under management (AUM) and consequently recorded double digit growth in normalised earnings before interest and tax (EBIT).

The company’s total AUM across Life and Funds Management increased to $59.8 billion, up 18 per cent on the previous year. Management of the assets produced EBIT of $438 million, up 13 per cent on the previous year.

Normalised net profit after tax (NPAT) came in at $334 million, up 2 per cent on the previous year. If it was not for a one-off TOFA tax benefit received during FY14, NPAT would represent an increase of 12 per cent on the previous year.

Challenger CEO, Brian Benari commented, “Challenger has again delivered strong operating performance with double digit earnings increases driven by AUM growth, stable Life margins and cost control. This is the third year in a row we have delivered a stable cash operating earnings margin, while our cost to income ratio has dropped 80 basis points to 33.8 per cent, a new low.”

The company reported normalised earnings per share of 61.2 cents, down 4.4 per cent on the previous year. This is due to the one of TOFA tax benefit received in FY14 and a higher share count following a capital raising in the first half of the financial year. If the TOFA benefit is excluded, EPS increased by 5 per cent. Life cash earning came in at $544 million, at the top end of forecasts and up 13 per cent on the previous year.

Challenger’s full year dividend came in at 30 cents, up 15 per cent, and the final dividend of 15.5 cents is now 100 per cent franked.

Going forward into FY16, the company provides “Life cash operating earnings guidance of $585-595 million for FY16… equivalent to an 11 per cent increase in cash operating earnings.”

“Challenger continues to target an overall return on equity of 18 per cent pre-tax and expects to maintain a fully franked dividend payout ratio of 45-55 per cent of normalised profit, subject to prevailing market conditions.”

Challenger’s FY15 results have come at the top end of forecasts. The company’s share price has fallen 10 per cent over the last twelve months, likely due to some over buying after strong FY14 results. The company recorded a decline in EPS, however the figure of most importance is the normalised earnings, which excludes the one of TOFA benefit, representing growth of 12 per cent on the previous year. FY15 results at the top end of forecasts will likely have a positive effect on the share price upon opening today, and if Challenger continues to perform, its share price will continue to benefit.

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Ben Visser Author: Ben Visser Aug 18, 2015

Ben is a Wise-owl equity analyst focusing on ASX blue-chips stocks. Ben has a Bachelor of Business in Finance majoring in property valuations and management. In his role at Wise-owl Ben conducts in-depth fundamental and technical analysis which helps him to find profitable investment opportunities on the ASX and abroad.

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