Challenger Group (CGF) Update

Submitted by Craig Strzelecki on 13 September, 2007 - 09:53

Challenger Group (CGF) has a price target of $6.75 with a Buy Recommendation from Australian shares analyst UBS. June Annuities sales stronger than trend: Data shows June annuity sales of $153m, against recent trends of c$120m p/mth. This is attributable to strong wealth/retirement income flows prior to June y/end. Further strong months of data are anticipated leading up to September 20, when deductibility is eliminated. They expect this change to materially reduce retirement income product demand in favour of superannuation accumulation-based products. Challenger Group (CGF) asset funding mix already changing: Annuities form a key component of CGF's Asset Mgt balance sheet, providing c$2.1bn of $3.5bn asset funding at 2H07. This is supported by $1.0bn of equity and $187m of subordinated debt, with a further $400-500m of sub debt planned. Challenger (CGF) may increasingly fund its Asset Mgt growth via off-balance sheet specialist funds in our view. This would enable more rapid growth and co-investment opportunities via the statutory funds on CGF's balance sheet. A further $1.8bn of annuities has now been moved to Challenger's balance sheet following completion of the acquisition from MetLife at 31 Aug 2007. The analysts do however acknowledge the following risks: (1) mortgage funding pressures may begin to bite in 6mths time if current illiquidity persists (2) structural asset value leverage to bond yields (3) lending covenants on term funding may tighten, compressing equity IRR. Read a previous recommendation for Challanger (CGF)

Challenger 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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