Challenger Financial (CGF) Update

Submitted by Craig Strzelecki on 16 March, 2007 - 19:55

Challenger Financial (CGF) have a Buy 2 share trading recommendation and a price target of $5 per share from stock analyst UBS. The analyst sees the following positives for Challenger Financial: (1) earnings revisions (2) balance sheet capacity/flexibility (3) specialist funds capabilities emerging (4) investment spread expanding. Risks for CGF: (1) Mortgage Mgt potentially harvesting (2) lumpiness in asset recycling (3) execution on deals. The diversified financial company have released December 2006 annuities data which comfirms CGF's market position. Total annuity market sales were $111.1m in Dec06, dn 6.9% seq and 12.6% on pcp. However CGF sales of $32.3m were up 13.1% seq and 10.3% on pcp. As a result CGF's market share climbed to 29% of new sales in Dec06 from 23.9% in Nov06 and 23% at Dec05. Growth came from long-term annuities, a key funding source for CGF's Asset Mgt business. CGF recently announced the zero cost acquisition of Metlife's $2bn annuities and personal super business. Although the transition of $2bn in cash and fixed income securities to CGF's preferred portfolio asset allocation may take 3 years, the analyst sees significant potential earnings upside from this acquisition. In the analyst's view CGF remains a key pick in financials and value CGF's Asset Mgt business (FY07 basis) at: (1) $2.13 for 1.5x historic cost net assets (i.e. the balance sheet), and (2) $0.44 for 10% of specialist FUM (i.e. the off-balance sheet). This does not capture unrealised gains or potential growth if Challenger Financial can recycle or originate new assets into funds.

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!

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