Challenger Limited (CGF)



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General Information
Company Name: Challenger Limited
Stock Code: CGF
Website: www.challenger.com.au
GICS Sub-Industry: Other Diversified Financial Services
Market Cap ($M): 4,394
Equiv. Shares (M): 564

Current Price Data+
Current Price Open High Low Last Close Volume Price Movement
$ 7.790 $ 7.850 $ 7.930 $ 7.790 $ 7.790 1,436,152 0%

Current Broker Consensus Recommendation more
Recommendation: Sell (3.5)
Recommendation Date: 29th Aug 2014
Brokers Surveyed: 4

Company Overview

Business Description:
Challenger Limited (CGF) is an investment management firm focusing on providing Australians with financial security in retirement. Challenger operates two core investment businesses, Life division and Funds Management division.

Strategy Analysis:
Annuities are in demand by retail investors moving into retirement and CGF is well placed to take advantage of this trend. Changing demographics clearly complement the business model. The two business divisions are aligned to changes in the industry and are well positioned to take advantage of their small positions in a large market that continues to grow. We expect strong long-term demand for lower-risk, lower-cost income stream products, with the industry focus on new products and expanded distribution. CGF¬īs simplified business model is based on annuity sales from its Life business and Funds Management, with around $40bn of funds and assets under management after selling most of its mortgage management business in late 2009. Management expects further growth in fund flows due to growth of existing boutique managers and investing in new managers over coming years. Challenger reported NPAT of $222.0m for the half-year ended 31 December 2012. The increase in statutory profit reflects a significant improvement in investment experience due to improved global sentiment leading to a contraction in credit spreads. Revenues from ordinary activities were $810.9m, up 21.7% from the same period last year. Diluted EPS was 41.5 cents compared to 3.8 cents last year. Net operating cash flow was $261.0m compared to $400.6m last year. The interim dividend declared was 9.5 cents compared with 7.5 cents last year.


Financial Summary
Year to Jun NPAT EPS EPS chg (%) PER DPS Yield (%) Franking (%)
2016  F 373.3 64.4 3.1 12.1 32.0 4.1 100.0
2015  F 356.1 62.5 3.0 12.5 30.0 3.9 85.0
2014  A 328.7 60.7 4.6 9.8 26.0 4.4 20.8
Source: Morningstar analyst estimates.

Peer Comparison
EPS Growth (%) P/E (%) Dividend Yield (%)
Company Mkt Cap 2014 A 2015 F 2016 F 2014 A 2015 F 2016 F 2014 A 2015 F 2016 F
Challenger (CGF) $4,428 M 0.0459 -0.0045 0.0452 12.9517 13.0096 12.4465 3.31 3.83 4.14
IOOF (IFL) $2,830 M 0.1260 0.1262 0.0958 18.0099 15.9912 14.5930 5.04 5.52 6.09
Macquarie Group (MQG) $18,726 M 0.5572 0.0969 0.0816 15.9412 14.5332 13.4366 6.44 5.04 5.51
Perpetual (PPT) $2,307 M 0.3245 0.2446 0.0155 21.0363 16.9027 16.6448 3.53 5.09 5.20
Platinum Asset Mgmt (PTM) $3,476 M 0.4366 0.0351 0.1102 18.4649 17.8380 16.0676 5.68 5.54 5.84

Market Comparison
Earnings P/E Ratio P/B Ratio P/E Growth P/S Ratio
CGF 1.81 12.9 1.85 6.40 4.26
Market 0.99 16.2 1.30 1.83 1.60
Sector 1.34 15.0 1.12 1.92 6.20

Directors
Name Position Start Date
Mr Brian Benari Chief Executive Officer,Managing Director 17 February 2012
Mr Peter L Polson Non-Executive Chairman 06 November 2003
Ms Brenda Mary Shanahan Non-Executive Director 01 April 2011
Mr Graham Allan Cubbin Non-Executive Director 06 January 2004
Mr Jonathan Grunzweig Non-Executive Director 06 October 2010
Mr Russell Richard Roberts Hooper Non-Executive Director 06 November 2003
Mr Leon Zwier Non-Executive Director 15 September 2006
Mr Steven Gregg Non-Executive Director 08 October 2012
Ms JoAnne Stephenson Non-Executive Director 08 October 2012

Management
Name Position
Paul Rogan Chief Executive, Distribution Product & Marketing
Robert Woods Chief Executive, Funds Management
Richard Howes Chief Executive, Life
Andrew Tobin Chief Financial Officer
Michael Vardanega Company Secretary
Andrew Brown Company Secretary

Substantial Shareholders
Holding Name
27,050,059 (5.02%) Paradice Investment Management Pty Ltd
30,185,678 (5.69%) National Australia Bank Limited
34,946,419 (6.54%) Caledonia (Private) Investments Pty Limited & its Associates
28,252,429 (5.24%) LSV Asset Management

Calendar of Events
Date Event
19 August 2015 Report (Prelim)
17 February 2015 Report (Interim)
21 October 2014 Report (Annual)
30 September 2014 Div Pay Date
© 2011 Morningstar, Inc. All rights reserved. The data and content contained herein are not guaranteed to be accurate, complete or timely. Neither Morningstar, nor its affiliates nor their content providers will have any liability for use or distribution of any of this information. To the extent that any of the content above constitutes advice, it is general advice that has been prepared by Morningstar Australasia Pty Ltd ABN: 95 090 665 544, AFSL: 240892 (a subsidiary of Morningstar, Inc.), without reference to your objectives, financial situation or needs. Before acting on any advice, you should consider the appropriateness of the advice and we recommend you obtain financial, legal and taxation advice before making any financial investment decision. If applicable investors should obtain the relevant product disclosure statement and consider it before making any decision to invest. Some material is copyright and published under licence from ASX Operations Pty Limited ACN 004 523 782 ("ASXO"). DISCLOSURE: Employees may have an interest in the securities discussed in this report. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/fsg.asp.

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