CGF – Credit Suisse rates the stock as Neutral

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Regulation may be creating a large opportunity for the company as the government is targeting legislation for retirement income products by July 2019. Credit Suisse suggests the industry could experience around $65bn inflows into lifetime annuities over the five years from implementation of policy.

Challenger is well-placed to capture some of these flows because of its first-mover advantage, a leading brand and established distribution. The broker suspects the growth opportunity will require almost $5bn in capital.

The proportion of the annuity book that is long-term has increased to 35% in FY18 from around 10% in FY17. Despite this, there is little impact Credit Suisse observes on capital intensity. Neutral rating and $12 target maintained.

Sector: Diversified Financials.

Target price is $12.00.Current Price is $10.99. Difference: $1.01 – (brackets indicate current price is over target). If CGF meets the Credit Suisse target it will return approximately 8% (excluding dividends, fees and charges – negative figures indicate an expected loss).

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