Challenger Financial Services Update

Submitted by Craig Strzelecki on 26 May, 2007 - 19:14

Challenger Financial Services (CGF) has a Buy 2 broker call and a share price target of $5.75 from sharemarket analyst UBS. The company's March Quarter update reinforces positive trends with Group Assets up 17.9% on pcp CGF reported March Quarter Funds/Loans under Administration. Key points from Challenger financial: (1) Funds Management $16.2bn, up 4.4% seq and 29.1% on pcp (2) Mortgage Mgt now $22.0bn, with resi lending up 1.7% seq and 8.1% on pcp showing some improvements (3) Asset Mgt has $5.4bn with off-balance sheet FUM up to $2.1bn from $0.6bn at pcp (5) Financial Planning had a good Qtr up 4.7% and Advice funds up 20% on pcp. Balance of risks appears to the upside vs. estimates: Group Assets $47.8bn up 3.1% seq and 17.9% on pcp. CGF also delivered operating leverage at 1H07 result with EBIT margin of 52% from 43% in 2H06. The analyst believes that the improving returns and continued underlying asset growth sees credibility of double-digit earnings growth expectations gaining traction. Challenger Financial Services Group is trading at c15% discount to market and is forecast to deliver strong 18% underlying earnings growth into FY08E. The anlaysts believe upside potential exists in (1) spread generation from the MetLife transaction (2) return on reinvested capital in the Asset Managementbusiness (3) Revenue improvement in Financial Planning. Potential Positives identified by the sharemarket analyst: (1) earnings revisions (2) balance sheet capacity/flexibility (3) specialist funds capabilities emerging (4) investment spread expanding. Potential Risks for Challenger Financial: (1) Mortgage Management squeeze (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!

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