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Investment management firm, Challenger Limited (ASX: CGF) has published its earning and guidance report today (i.e., 23 January 2019). For the first half year ending 31 December 2018 (1H FY19), the company is expecting to earn a normalized net profit before tax of $270 million. Earnings have been impacted by lower cash distributions on Lifeâs absolute return portfolio (AUM $800 million), which were $10 million in 1H FY19, representing a yield of 1.3 percent for the half year. This was approximately $13 million lower than the 1H FY18. Earnings were also impacted by the lower Funds Management performance fees, which were $2 million in 1H FY19 and were $4 million lower than the 1H FY18. The company is expecting to report a normalized net profit after tax of $200 million in 1H FY 2019.Â
As per the announcement, the companyâs statutory net profit includes valuation movements on assets and liabilities supporting the Life business, which results in investment experience. The company is expecting to report 1H FY19 investment experience of -$194 million (after tax), resulting in a statutory net profit after tax of $6 million.
Investment experience of the first half of FY 2019 includes -$153mn (after-tax) relating to Lifeâs investment assets, mainly due to lower equity markets and wider fixed income credit spreads. It also includes -$41 million relating to Lifeâs policy liabilities.
The company is strongly capitalized with a Prescribed Capital Amount (PCA) ratio of 1.54 times as at 31 December 2018. The PCA ratio is at the upper end of the companyâs target PCA range of 1.3 to 1.6 times and represents excess capital of $1.3bn above APRAâs minimum PCA requirement. As of 31 December 2018, the companyâs CET1 ratio was 1.04 times. Both the ratios (PCA and CET1) were benefited from a reduction in capital intensity within the portfolio. During the period the capital intensity reduced by 1.1% to 13.0%.
In the announcement, the company also provided its FY19 normalized net profit before tax guidance. Due to the lower than expected 1H FY 2019 normalized net profit before tax and changes to Lifeâs investment portfolio to lower capital intensity, the company has reduced its FY19 guidance to a range of $545 million to $565 million. The financial information for 1H FY 2019 is scheduled to be released on 12 February 2019.
The companyâs CEO Mr. Richard Howes said that while conditions are challenging, he remains very positive about the future. He further told the companyâs strong track record of success has given confidence in the companyâ performance over the longer term.
Post the announcement, the share price of the company fell by 14.85% today (AEST 12:56 PM). Meanwhile, in the last six months, has declined by 25.38% as on 22 January 2019. CGFâs shares traded at $7.860 with a market capitalization $5.64 billion as on 23 December 2018 (AEST 12:56 PM).
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