Challenger is seeking to diversify its business beyond retirement solutions. Utilising its strong brand, the company will plug product gaps and engage in new joint ventures to attract more customers.
There is a clear dynamism in CGF’s management to expand the business beyond its core retirement focus. The key points to CGF’s strategy day were:
- Expanding partnerships. CGF confirmed a new joint venture is being explored with back office technology provider SimCorp. CGF will own 80% of the JV that will see CGF move from an in-house provider of back office services to a Software-as-a-Service provider to a much wider audience.
- Build out the bank. This is a key growth plank for CGF. New lending products for businesses will expand the target market.
- Unifying the brand. CGF will bring together its Life, Bank and Asset Management segments under a single, powerful brand.
- Expanding yield products. CGF has flagged a more holistic approach in developing and offering its full array of income products from annuities.
- Life Investment Portfolio. CGF confirmed that asset risk premiums in the Life Book are favourable and have returned to long-term averages.
Investment view
The strategy to broaden the Challenger brand to attract more customers makes sense and should engage the customer base along a much wider time frame. It could attract customers much earlier (working age, paying off debt phase) and expand the options for customers in retirement (travelling, downsizing, aged care).
CGF reaffirmed its FY22f normalised profit before tax guidance range of $430-480 million. We think it will lean towards the upper end of that range.
Risks to investment view
CGF’s earnings would be at risk if the customer base fell and/or funds under management fell. Government policy can present a risk if changes adversely affected CGF’s business.
Recommendation
We have retained our Buy recommendation.
