Challenger flags ‘common purpose’ with US-based Apollo

Challenger’s newly appointed chief executive has signalled more deals with US alternative asset firm Apollo could be on the horizon after unveiling plans to jointly build a non-bank lender.

The ASX-listed financial services firm announced on Thursday it had expanded its relationship with Apollo by signing a non-binding agreement to build a non-bank lending business for corporate and commercial customers in Australia and New Zealand, although did not provide details on the lender or any timeline for developments.

Challenger CEO Nick Hamilton.

The announcement came as Challenger reported $282 million in half-year profits and reaffirmed its earnings guidance for the 2022 financial year. The result led to a 5.9 per cent rise in its share price to $6.70 in late afternoon trade.

Two global investors, Athene and Apollo Global Management, last year bought an 18 per cent stake in Challenger, which sent its stock price soaring amid speculation a takeover could be imminent.

Challenger CEO Nick Hamilton, who took over from longstanding chief executive Richard Howes less than two months ago, brushed off market speculation of a merger and said the two companies had engaged in positive discussions about increasing collaboration.

“What we’ve hopefully indicated today is the opportunities for the two businesses that share a pretty common purpose to be able to work constructively together,” Mr Hamilton said. “We’ve enjoyed very positive dialogue with the Apollo team … The similarities in the businesses allow that dialogue to be very constructive.”

Challenger reported its profits had risen by almost $60 million over the 12 months to December 31, contributing to the decision to pay shareholders an interim dividend of 11.5 cents per share, 21 per cent higher than the prior period.

Challenger’s profits were driven by “record” annuities sales of $4.9 billion, an increase of 44 per cent over the year, rising funds under management and progress on growing the group’s small bank, MyLife MyFinance, which was acquired in 2020.

The federal government introduced laws this month to mandate the ‘retirement income covenant’, which forces superannuation funds to ensure all members have a retirement plan. This is set to benefit Challenger, which specialises in annuities – a risk-averse retirement product that pools funds and pays an income for life.

“Over time, we look forward to partnering with super funds to deliver innovative retirement income solutions as Australians plan for and enter retirement,” Mr Hamilton said.

Morningstar analyst Shaun Ler said the results were positive overall, adding the company was set to benefit from a higher interest rate environment due to its high exposure to fixed income products.

Mr Ler said ongoing collaboration with Apollo could strengthen Challenger’s balance sheet. “Apollo will now want to see whether there is upside for them.”

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