Challenger shares slump as profit falls, misses forecasts

Challenger shares slumped after its annual profit fell 19pc to $323m, as increased costs wiped out a modest rise in revenue.

Challenger CEO Brian Benari. Pic: Renee Nowytarger

Challenger Financial Group’s annual net profit fell 19 per cent to $323 million as increased expenses and a hike in finance costs more than wiped out a modest rise in revenue.

Analysts and investors read the result as a miss and hammered Challenger shares (CGF), which fell eight per cent in early trade, putting the investment management firm on track for its biggest one-day fall since February.

The earnings result missed the average of analysts calculated by Bloomberg for a $402.4 million bottom line and overshadowed the company’s claim to have met guidance given earlier this year.

Management’s preferred measure of normalised net profit before tax was $547 million, which was up eight per cent but at the lower end of the $545m-$565m guidance.

Normalised net profit after tax — which strips out investment returns and other volatile items — was a record $406 million, up six per cent, but below analysts’ average estimate of $432 million.

Chief executive Brian Benari highlighted strong flows into both Challenger’s annuities and funds management business, with group assets under management surging by 16 per cent to $81 billion.

Mr Benari said the most pleasing aspect of those flows was an increase into longer duration — life or 20-year — annuity products that increased assets by $1.8 billion or 37 per cent. The longer duration means that Challenger is able to earn revenue on those assets for a longer period and does not have to generate as many sales to grow its book, Mr Benari said.

Growth in assets was underpinned by the addition of Challenger products to the AMP platform and the first full year of a joint venture in Japan, which added $582 million, close to guidance of $600 million.

Challenger annuities are also soon to be added to the BT and Hub24 distribution platforms.

But the Japan joint venture also hit Challenger’s targeted 18 per cent return on equity, which dropped by $1.8 per cent to 16.5 per cent as a result of the $500 million share issue to support the venture,

The final dividend was increased half a cent to 18c, making 35.5c for the year, up 3 per cent.