Four Reasons To Buy Challenger

Like all good companies, Challenger Limited (ASX: CGF) has a habit of under-promising and over-delivering. It’s a fact not lost on investors, who have driven the share price up from around $3 five years ago, to over $13 today. Challenger is a top 3 holding in The Montgomery Fund, and our confidence in the business was borne out yet again this week when it reported a 1Q trading update.

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Will Challenger Require More Equity?

Wealth manager Challenger’s ((CGF)) first half result marks a shift to longer duration annuities, supported by the company’s new relationship with Mitsui Sumitomo Primary Life to sell Australian dollar-denominated securities in Japan, amid the company’s expanding distribution partnerships domestically. Guidance for cash operating earnings (COE) in life has been re-affirmed for FY17 in a range of $620-640m.

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Challenger (CGF) – One Of The ‘Safest’ Bets in Retirement Planning?

A recent survey conducted by the Australian Bureau of Statistics (June 2015) reveals that the proportion of people older than 65 years of age increased 26% between 1995 and 2015. During the same period, the number of people over 85 years grew 148%, compared with the total population growth of 32.1%. The average life expectancy in Australia is 83 years, much higher than the world average 71.7 years. Subsequently, the total number of SMSFs have risen from 991k in 2014 to 1.05 million in 2015. These dynamics highlight the rising demand for retirement planning in Australia.

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Few Concerns For Challenger Ahead

Challenger (CGF) has renewed its focus on margins, while expounding details on the expected benefits of the company’s platform as it is rolled out to industry funds and to Colonial First State. Morgan Stanley believes the growth options demand patience. While awaiting anticipated government support for the recommendations from the Financial Services Inquiry, the broker notes Challenger is building out its capability.

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