Lower Rates A Challenge For Challenger

By Glenn Dyer | More Articles by Glenn Dyer

Challenger shares were sold off yesterday on the second earnings downgrade in four months.

The annuities and funds management group saw its shares slide more than 12% at one stage to a 52-week low of $6.72 after revealing the downgrade at an investor day function.

At the same time, the company revealed an early look at its guidance for the 2019-20 year and on first glance, it is also weak – at best no better than the weak 2018-19 result.

So down went the shares but they slowly recovered to be off 9% at $6.95 at the close.

In April Challenger provided a trading update and reaffirmed the downgraded guidance provided in February ahead of the release of its December half-year results.

That was for normalised net profit before tax to be between $545 million and $565 million in FY 2019, compared to its previous guidance of $591 million to $613 million.

On Thursday Challenger revealed that due to what it called ‘the challenging market environment’, it now expects to achieve the bottom end of its guidance range in FY 2019. (around $544 million). This is likely to mean a small decline on FY 2018’s normalised net profit before tax of $547 million.

As well as this guidance, Challenger released its guidance for 2019-20 and to analysts it looks likely to be another weak result in respect to profits.

The FY 2020 guidance range for normalised net profit before tax is $500 million to $550 million. This assumes lower equities growth, lower interest rates on shareholder capital, and the impact of its distribution, product, and marketing initiatives.

To keep shareholders happy, Challenger committed to maintaining its dividend in 2019-20, subject to market conditions and capital allocation priorities.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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