Challenger Financial Services Group (CGF) Share Trading Update

Submitted by Craig Strzelecki on 1 March, 2007 - 03:52

Challenger Financial Services (CGF) have a Buy 2 share trading recommendation and a price target of $5 per share from analyst UBS. The analyst has observed that the Challenger Fiannacial has acquired $2billion book of annuities for zero cost. CGF will assume $2bn of assets (& liabilities) from MetLife around July 2007. CGF will take up to $10m of one-off restructuring charges for the integration of the portfolio. The transfer consolidates CGF's position as the number 1 provider of annuities in Australia. CGF's investment strategy for its Asset Management balance sheet has been diversified across fixed income, real estate and infrastructure. The MetLife portfolio is generating close to zero net income spread with 50/50 cash/fixed income asset allocation. CGF's opportunity is to progressively improve the investment spread via diversification seeking increased risk/reward. Earnings forecasts are unchanged at this stage, but they note material potential accretion in future periods. e.g. 2% net investment spread and $10m ongoing incremental costs translates to 10% potential accretion to FY09E earnings. They note that CGF delivered 3.5% underlying investment spread (plus realised gains) in 1H07. Positives for CGF the analyst found are: (1) earnings revisions (2) balance sheet capacity/flexibility (3) specialist funds capabilities emerging (4) investment spread expanding. Risks for Challenger Financial: (1) Mortgage Management potentially harvesting (2) lumpiness in asset recycling (3) execution on deals. Price Target is SOTP based.

Challenger Financial Services Group Limited is listed on the Australian Stock Exchange (ASX) under stock code CGF. You can view their investor website here. CGF was listed on the ASX on 23 December, 2003. Find out the meaning of the recommendations in this primer. Challenger is one of Australia's largest non-bank mortgage lenders, funding commercial loans as well as a range of residential mortgage products offered by a network of preferred lenders under their own brands. It is a multi-faceted financial services organisation, with core businesses in annuities, funds management and administration platforms, financial planning, mortgage financing and margin lending. Challenger has a mortgage book of $21.6 billion. Peter Leith Polson is the Chairman of Challenger Financial and the Managing Director is Michael Tilley. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade CGF. Check your charts and good luck with your share trading!