Underwhelming outlook

RESULTS

Need To Know

• FY23 earnings beat overshadowed by a softer FY24 guidance.
• Dividend pay-out policy revised down to 30-50% from 45-50%.  
• Result likely to underwhelm market in short-term. We maintain the view that CGF should continue to benefit from an elevated interest rate environment. 

FY23 Result overview:

Normalised PBT A$521m vs A$516m consensus

Normalised NPAT A$364m vs A$326m consensus

DPS 24cps vs 25cps consensus

EPS 39.9cps vs 46.3cps consensus

Group AUM increased 6% on FY22 to A$105bn.

FY23 Annuity sales were up 8% on FY22 to A$5.5bn.

Retail annuities up 53% on FY22 to A$3.6bn reflecting attractive product offering.

Highlights

NPBT beat ~A$521m vs A$516m consensus. We note that, CGF bank contributed A$8m to NBPT, which we assume consensus will have a mix of those who include or exclude. 

Life: Cash Operating Earnings Margin 2.82%, improving to ~2.88% in 2H23. Annuity sales up 8% to 5.5bn and the total life book grew ~A$0.9bn. Capital (CET1) increased from 1.11x to 1.16x.  

Funds Management: Net income down ~7%. Net outflows A$0.5bn. ROE (pre-tax) 21.7% (down from 31.2%). 

Outlook weaker than what the market was expecting. FY24 PBT growth guidance of 11% below consensus of ~13%. FY24 Normalised ROE target held flat at RBA cash rate + 12%. PCA ratio at 1.59x regulatory requirement, at upper end of 1.3x – 1.7x target range (target range unchanged for FY24 target). 

Dividend policy was revised down to a 30-50% pay-out ratio (45-50% previous). We expect the market will be somewhat confused around the cautious nature of the guidance and the necessity for the lowering of the groups dividend pay-out range.

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. 

The share price has run up into the result so the share price reaction is to be expected. CGF remains at a 0.5SD discount to its long term average PER despite the strong operating conditions. 

We re-affirm CGF a Buy.

Figure 1: CGF remains at a ~0.5SD discount to its long term average PER