Challenger – $1bn+ annuity sales for the 2nd straight qtr
What Mattered Today
The markets struggled early but found a base around 10.30am before sustained buying saw the market close back up above 5400. As we wrote this morning, we’ve been looking for a pullback to the 5400 area following the 300-point advance since mid-September, a strong market will now hold this area and commence a recovery back towards 5500.
The strength was reasonable today with commentary from new RBA Governor Philip Lowe coinciding with the release of the RBA minutes from their last meeting. The main message from both is that if things evolve as the RBA expects, it’s not going cut interest rates further. More cuts will only come if we see inflation is weaker for longer, the labour market deteriorates or the housing market cools considerably – all of which could happen but at this stage are not their base case scenario. Unsurprisingly, the Aussie dollar rallied on the comments and dragged the market up as well…
Casino stocks were a mixed bag – Crown (CWN) put on +1.7% after yesterday’s 13.9% decline but the other guys saw a bit of selling – Star (SGR) was down over 5% at one stage but recovered to be down only -0.54%. We covered our thoughts on the sector this morning with the note available on the website here
Elsewhere on the market, we had a range today of +/- 31 points, a high of 5417, a low of 5386 and a close of 5410, up +22pts or +0.41%.
ASX 200 Intra-Day Chart
ASX 200 daily chart
Challenger Group Financial (CGF);Released another cracking set of annuity sales numbers today and the stock rallied +6.2% on the back of it. They sold $1,033m of annuities for the three months to Sep which is up +46% on the same time last year. It’s a big number (obviously) but all the better coming off a good Q4 result as well. We should see upgraded numbers for this stock with talk about +20% yoy sale growth now being overly conservative.
The key to it seems to be lifetime annuity sales which accounted for 29% of the sales in the quarter. More broadly, with around $70bn going into retirement each year, the current $4bn that is finding a home in annuities seems a bit light on to us. If we assume that over time, we’ll get allocations closer to 20-25%, that equates to around $14bn pa flowing into annuities. The only main issue stems come from the capital side. Annuities are a highly capital intensive and the more they write, the more capital they require.
Cochlear (COH) had their AGM today and there was nothing too earthshattering to report. The business remains on track and was up +0.17% on the session. In our mind, this stock has run too hard and now trades at a big premium to its longer term valuation – leaving it susceptible to shocks. A great business, and great story for Australia but it’s simply too expensive at this point in time.
Aurizon (AZJ) also had their AGM today and re-affirmed recent guidance. The market had bid these guys up over the past few weeks so maybe some profit taking played out. Nothing to get us excited about this stock at current levels…
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