Challenger Financial Services reported normalised net-profit-after-tax 1% shy of consensus. Statutory NPAT was 18% below consensus, thanks to a one-off investment hit from expanded credit spreads.
Morgans notes second-half business metrics were solid and margins stable, retail annuity sales growth leading the charge.
On the flip side, Challenger guided to margin compression, as lower bond yields erode shareholder capital. The broker downgrades FY17/FY18 earnings per share by 2%-3%.
The broker expects Challenger to continue to deliver mid-to-high single digit earnings per share growth and considers the stock cheap relative to the market. Add rating retained and target rises to $10.14 from $10.11.
Sector: Diversified Financials.