Why Challenger (ASX:CGF) stock price fell 15% post quarterly update

Summary

  • Challenger was the top loser on the ASX, falling as much as 15.45% to A$5.58.
  • The company has pegged FY21 NPBT at the bottom end of its guidance range.
  • During March quarter, the group AUM grew 8% to surpass the A$100 billion mark for the first time.

The share price of Challenger Limited (ASX: CGF) fell over 15 per cent on Tuesday after the company issued March quarter earnings update.

The investment management firm has also reaffirmed its normalised net profit before tax (NPBT) guidance for the Financial Year 2020-21, albeit at the lower end of expectations. The company expects NPBT at the bottom end of its A$390 million to A$440 million guidance range.

Weighed down by the annual profit forecast, Challenger share price declined as much as 15.45% to A$5.58 on the Australian Securities Exchange (ASX). The share opened lower at A$6.17 against the previous close price of A$6.60. At the time of reporting, Challenger share was quoting at A$5.66, down 14.23 per cent.

The stock was the top loser on the ASX, followed by Lynas Rare Earths Ltd (ASX: LYC), which was down 6.27%.

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In a similar trend, peer companies, Platinum Asset Management (ASX: PTM) and Pendal Group (ASX: PDL) were trading lower. Bucking the bearish trend, shares of AMP Limited (ASX: AMP) and Netwealth Group (ASX: NWL) edged higher. 

Challenger Pegs FY21 NPBT Guidance at Bottom End

The Sydney-based retirement income and investment manager has projected FY21 normalised NPBT at the bottom end of its guidance range. This was attributed to the sharp fall in credit spreads over the year, which were not fully reflected in customer pricing.

The company said that it is addressing investment conditions by significantly adjusting annuity pricing.

Group AUM Rises 8% During March Quarter

The group assets under management (AUM) grew 8% during the March quarter to exceed A$100 billion for the first time. This was supported by robust Life annuity book growth and Funds Management net flows.

The company’s Life business recorded 155% sales growth on the prior corresponding period (pcp) at A$2,419 million in March quarter of the current fiscal. This was driven by higher annuity sales of A$1,572 million and strong Challenger Index Plus sales of A$847 million. The total annuity sales rose 165% on the pcp to A$1,572 million, driven by robust growth in domestic term annuity sales.

Life’s investment assets rose 6% to A$20.8 billion during the quarter under review, on the back of record quarterly net book growth ($1,377 million), retained earnings and movements.

Challenger’s Funds Management business reported 9% growth in funds under management (FUM) at A$99.7 billion, an increase of A$8.5 billion for the quarter. The company has emerged as the fastest growing active manager in Australia, benefiting from industry leading quarterly net flows of A$7 billion and a positive contribution from investment markets.


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