Investors in Challenger Ltd slowly cooled to the company’s 2018-19 result yesterday which while meeting revised guidance in June (the second downgrade in five months) saw no change in what looks like a slow outlook.
A very different market reaction today to Challenger’s confirmation of a weak net profit of just $6.1 million in the December half, compared to the January 23 downgrade and reworked guidance when they plunged 17%.
The company has announced its capital position at the end of March amid a de-risking of its investment portfolio. Credit Suisse calculates investment experience losses, not disclosed, represent around 6.5% of the investment assets.
After a challenging period for Challenger, Sep Q total book growth exceeded expectations thanks to Japanese annuity sales and growth in guaranteed income products. Local fixed-term sales are holding up, Macquarie notes, despite low-interest rates.
FY19 net profit was below expectations and at the bottom of the target range of $545-565m, Morgans notes. Overall, the broker considers the result underpins confidence that the earnings profile has largely been re-based.
Credit Suisse has concluded that ongoing weak sales is a more severe earnings headwind for the company, compared with annuity spreads. The company has also guided to FY20, which implies -7-12% downgrades to forecasts.