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Australian Investment Blog

ASX:CGF 14/08/2018

Challenger Group (CGF) – A miss across the board  


Challenger Group (CGF)  $11.47 as at 14/08/2018


This morning Challenger reported their full year results and they were a miss versus market expectations for FY18 and their guidance was also light on relative to the market.  The stock is trading down 7.87% at time of writing on the session and we now have the share price down ~20% from the early January highs. NPAT for FY18 came in at $406m versus the $423m expected by the market, which is a about a 4% miss on the profit line. The dividend was in line with expectations, however that’s of little comfort given the guidance was below expectations. The company guided for pre-tax profit growth of between 8-12%, at the midpoint (10%) it implies pre-tax profit for FY19 of $601m, however the market was forecasting $611m. The real issue it seems for CGF is the move to lower risk assets underpinning their future liabilities (annuities). While a mix of lower risk assets reduces the overall risk in the business, it has a negative impact on margins and the companies ROE will come under continued pressure. Challenger Group Financial (CGF) Chart 

Market Matters Take/Outlook

A miss on most metrics today for CGF and the move to amend their asset mix supporting liabilities will on one hand create a safer business but one that earns less money over time, and therefore the market probably re-rates it lower from here. We remain short term negative on CGF

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