The Challenger Ltd (ASX: CGF) share price fell more than 10% after reporting its FY22 result to investors.
Challenger is the leading provider of annuities in Australia.
Challenger’s challenging FY22 result
Here are some of the highlights from the report:
- Total life sales increased by 40% to $9.7 billion
- Annuity sales increased 12% to $5.1 billion
- Total group assets under management (AUM) fell
- Normalised net profit before tax went up 19% to $472 million
- Statutory net profit after tax (NPAT) sank 57% to $254 million
- Full year dividend up 15% to 23 cents per share
The statutory net profit includes the changes in value of its investment portfolio. Normalised net profit before tax was toward the upper end of its guidance. Profit can obviously have an impact on the Challenger share price.
The business noted that during the year, it launched new funds management and life products to expand its offering.
Challenger also reset its strategy with a clear focus on the customer, including forming a new customer division.
The business also linked up with two new strategic partners to build long-term growth – SimCorp and Apollo. Management see significant potential with Apollo in the specialist lending market. Challenger said that this will address an underserviced market, providing business with high-quality lending solutions and support.
Bank strategic review
During the year, Challenger’s banking operations suffered a loss before interest and tax (EBIT) of $11 million, reflecting “significant regulatory and integration expenses.” The net interest margin (NIM) was 0.93% for the 11 months to June 2022.
Since the acquisition in December 2020, market conditions have “changed” and it seems the bank is “unlikely to realise the expected benefits in the timeframe anticipated”. Therefore, it has commenced a strategic review of this business.
FY23 outlook for the Challenger share price
In FY23, Challenger said it’s targeting normalised net profit before tax of between $485 million to $535 million. That compares to $472 million in FY22, so it’s expecting another decent year of growth.
The Challenger Managing Director and CEO Nick Hamilton said:
The macro-economic environment presents both challenges and opportunities with rising interest rates supporting annuity sales and investment returns, however wider credit spreads and lower equity markets triggered unrealised market losses in the second half. Credit spreads have partially reversed in July.
We continue to maintain a significant competitive advantage in funds management, with an exceptional range of managers and diversified offering, ensuring we have Australia’s leading active manager platform.
It will be interesting to see if Challenger is now able to kick on and keep delivering growth, delivering on the long-term growth it’s predicted to have thanks to ageing demographics. I’m not sure, as part of the equation relates to interest rates and investment markets, which are unknowable.