Challenger Financial Services (CGF) Share Trading Update

Submitted by Craig Strzelecki on 11 April, 2007 - 17:49

Challenger Financial Services (CGF) has a Buy 2 share recommendation and an increased price target of $5.75 per share from analyst UBS. During 1H07 CGF's Asset Mgt business delivered pre-tax RONA of 30%, above divisional targets of 18%. This was driven by attractive asset yields, fee generation and strong operating leverage (EBIT mgn 73.5%). The analyst's forecasts anticipated a reversion to 18%, which appears unlikely at least in the near term. The Asset Management division should be able to reinvest its organically generated capital, given low capital intensity of other divns (Funds Mgt, Financial Planning, Mortgage Mgt). This enables an accelerated rollout of the specialist fund strategy and maintenance of higher rates of return. Each 1% increase in Asset Mgt RONA is ~3% to group earnings in FY08E. Challenger Financial (CGF) remains a key pick in financials for the analyst. Their EPS forecasts have increased by about 9% in 08/09E, price target increases to $5.75, which implies 16.4x FY08E. This appears cheap given the strong earnings growth with underlying NPATg of 18% in FY08 (ex CIF deconsolidation). The analyst observed the following positives for Challanger Financial Services: (1) earnings revisions (2) balance sheet capacity/flexibility (3) specialist funds capabilities emerging (4) investment spread expanding. Risks facing Challenger Financial as observed by the anlyst: (1) Mortgage Mgt potentially harvesting (2) lumpiness in asset recycling (3) execution/strike rate on deals

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!