Challenger Limited (CGF)
BUY

I'm watching you

 6 Jul 2023
Sector: Financials

COMPANY UPDATE

Need To Know

  • US annuity provider American Equity (AEL.US) sold to Brookfield Reinsurance (BNRE.TSX)) for $US4.3bn  
  • The global trend of larger asset management groups taking an interest in annuity businesses continues
  • CGF has two large strategic investors on the register Apollo Global Management (APO.US) 19.9%, and MS&AD (8725.JP) holding a 15% stake.

Annuity providers continue to hold appeal to large global asset managers given the ability to earn active fees, exposure to the aging population, and benefits that can be derived from scale.

Brookfield Reinsurance's business purchase of American Equity (AEL) adds $US100bn to assets under management, coming after both parties have worked in partnership since 2020. AEL has had interest in the past from Elliott Investment Management-backed insurance firm Prosperity Life, Athene Holding and Mutual Life Insurance.

CGF’s largest shareholder Apollo (APO) in May 2023 described the current environment as being the ‘golden age of annuities’, given relative investment uncertainty and the ability to lock in ~5% returns over the medium/long term to provide for retirement income certainty.  

In our view, APO is likely to continue to creep on the CGF share register (they added to holding in late 2022). We continue to see CGF as holding significant strategic appeal. Public market investors have found CGF difficult to value at times. We suspect a private investor, or large global investor would be able to value CGF much higher than the current 12x FY24 PER multiple. 

Investment View

The last few years of low-interest rates have been tough for CGF, but these conditions have started to reverse, and we can now see CGF gaining the benefit of higher interest rates. New management continues to simplify the business, which we are supportive of. 

The share price can trade on higher earnings multiple if the business can consistently earn its ROE target (RBA cash rate + 12%), something the market does not currently factor in. 

We are buyers of CGF given the pathway to improved earnings (and ROE) from clearing macro headwinds and improving operational performance. We rate CGF a Buy. 

View the latest Research Report

Stock Overview

Share Price

Company Overview

CGF is a global investment manager offering retirement services and managing equity mutual funds.

Disclaimers and Disclosures

Issuer

The information and opinions contained within Sandstone Insights Research were prepared by MST Financial Services Pty Ltd (ABN 54 617 475 180, AFSL 500557) ("MST").

Reliance

Whilst MST make every effort to use reliable, comprehensive information in the construction of its reports, MST make no representation, warranty or undertaking of the accuracy, timeliness or completeness of information in this report. Save for any statutory liability that cannot be excluded, MST and MST employees, representative and agents shall not be liable (whether in negligence or otherwise) for any error or inaccuracy in, or omission from, this advice or any resulting loss suffered by the recipient or any other person.

General Advice

Any advice contained within Sandstone Insights Research is general advice only and has been prepared without taking into account any person’s objectives, financial situation or needs. Any person, before acting on any advice contained within Sandstone Insights Research, should first consider consulting with a financial adviser to assess whether that advice is appropriate for their objectives, financial situation and needs. 

General Disclosures

This report should be read in conjunction with MST Disclaimers and Disclosures and is published in accordance with MST Conflict Management Policy which are available on the MST website: https://www.sandstoneinsights.com.au. 

Currency of Research

The recommendations made in a Sandstone Insights Research report are current as of the publication date. If you are reading a report materially after publication, it is likely that circumstances will have changed and at least some aspects of the analysis may no longer hold.

Access and Use

Any access to or use of Sandstone Insights Research is subject to the Terms of Use. By accessing or using Sandstone Insights Research you hereby agree to be bound by our Terms and Conditions and hereby liable for any monies due in payment of accessing this service. In addition you consent to us collecting and using your personal data (including cookies) in accordance with MST Privacy Policy, including for the purpose of a) setting your preferences and b) collecting readership data so MST may deliver an improved and personalised service to you. If you do not agree to MST Terms of Use and/or if you do not wish to consent to MST use of your personal data, please do not access this service.

Equities Research Methodology

Please click here for information about MST equities research methodology.