Annuities specialist and fund manager Challenger is heading deeper into banking after posting a half-year profit of $282 million and lifting interim dividend 21% to 11.5 cents a share.
The headline profit is higher than the $222.8 million reported for the December 2020 period and came after what it said were “record” annuities sales of $4.9 billion in the six months – up 44% from the December, 2020 half.
Challenger confirmed its full year guidance of normalised net profit before tax of between $430 million and $480 million and said the group was well positioned to meet its FY22 guidance and targets.
But the interesting part of the announcement was news of the new banking with US funds giant and major shareholder Apollo.
That deal is not a given yet – Challenger announced it had expanded its strategic relationship with Apollo by signing a non-binding agreement to build a “leading non-bank lending business” in Australia and New Zealand, an indication that the new business will still have to be shaped and agreed to by both groups.
Considering Apollo was one of the two big foreign groups that grabbed a combined 18% of Challenger last year (the other was Athene, Apollo’s annuities arm), the banking joint venture shouldn’t be all that surprising – both companies indicated last year that deals such as this would be looked at.
Challenger said on Thursday that pursuing a joint venture with Apollo was strongly aligned to the group’s strategy to focus on pursuing growth opportunities and diversifying its business.
“Challenger’s relationships in Australian lending markets and its operating platform, coupled with Apollo’s extensive global credit investing capabilities and range of retirement services products, provides significant opportunities and potential value for both parties over the medium term,” Challenger said.
Challenger also saw a 20% rise in funds under management to $109 billion in the last half of 2020.
CEO Nick Hamilton said in the earnings release this increase highlights “the benefits of our boutique business model, diversified range of managers and asset classes, as well as the initial gains from our expansion offshore”.
Mr Hamilton described the result as “strong” with growth “right across our business, diversifying revenue and focusing on the disciplined execution of our strategy”.
“As the clear leader in retirement incomes, and one of the fastest growing active funds managers in the country, complemented by the strategic acquisition of our new digital bank, Challenger has a unique opportunity to meet the needs of more Australians entering and in retirement.”
Challenger agreed to acquire a small bank, MyLife MyFinance, in 2020, and Mr Hamilton said the integration had “progressed well” and Challenger is well placed to provide customers with term deposit solutions. This could very well be the basis of the expanded banking business with Apollo.
All this was music to the wallets of investors in Challenger with the shares up more than 6% to $6.74.
