Challenger’s investors didn’t seem to like the figures in the financial group’s third quarter update, despite it looking good on paper with further growth across the business.
According to the statement to the ASX, group assets under management rose 8% for the quarter and topped $100 billion. This would make Challenger Australia’s third largest active asset manager.
Supporting this growth was a 6% increase in Life investment assets. Management said that this was driven by record quarterly annuity sales of $1.6 billion and record quarterly Life book growth of 9.2% for the quarter.
Also growing during the third quarter was its funds under management (FUM) for the Funds Management business. Challenger recorded a 9% increase in FUM, including $7 billion of net flows.
All well and good but the shares lost 10% early on and went on falling, ending the day at $5.56 for a loss of more than 15% and the lowest since last December.
It wouldn’t surprise if the shares are weaker again on Wednesday.
Why? Perhaps it was the admission in the update that while the company reckons it will make its earnings guidance for the June 30 year, it will be at the lower end.
Its normalised net profit before tax guidance for FY 2021 is $390 million to $440 million guidance range.
And the guidance yesterday is for the result to be at the bottom end of the range where, if the final quarter is weak, could see a shortfall and a miss for guidance.
Challenger CEO Richard Howes though was pleased with the quarter and notes that its strategy is paying off.
He said: “Challenger’s performance in the third quarter demonstrates our strategy to diversify revenue is working. We have been investing in our distribution, product and marketing capability over recent years which is extending our customer reach and diversifying our product offering and distribution channels.”
That weakness follows the sharp decline in credit spreads over the year, which were not fully reflected in customer pricing.
Challenger said it is responding to the investment conditions by significantly adjusting annuity pricing. However, this won’t be in time to impact its FY 2021 earnings.
That means investors are worried Challenger has fallen behind the curve as spreads move faster than it can react and adjust selling prices for annuities and this in turn pressures the bottom line.
