Balanced Portfolio Recommendation: ADD 2% Challenger (CGF)
Date: 25/6/2024
*** GENERAL AVICE ONLY***
Challenger Limited (CGF), is an ASX-listed investment management firm with $117 billion in assets under management as of 31 December 2023. The company operates through its fiduciary Funds Management division and the APRA-regulated Life division. Challenger Life Company Limited, managing $24 billion in assets, is Australia’s largest provider of annuities and works closely with advisers to provide regular income to thousands of clients. Challenger Investment Management serves as an institutional manager focusing on a global fixed income opportunity set. Additionally, Fidante, a global investment management business, forms long-term alliances with top-tier investment managers, offering access to equity, fixed income, and alternative assets. Challenger is known for its robust management and innovative investment approach, ensuring substantial value creation and consistent income for its clients.
*** Trade Plan ***
We recommend lifting our allocation to 5% to Challenger Limited (CGF) into earnings on the 13th of August due to its higher yield and promising growth prospects.
As Australians transition from accumulation to de-cumulation, UBS estimates that assets under management (AUM) in the retirement phase, now over $1 trillion, are growing faster than AUM in the contribution phase. UBS is optimistic about Challenger, highlighting its strong position as Australia’s largest annuity provider and the anticipated growth in its market. This growth is bolstered by closer collaborations with industry super funds, providing new distribution opportunities that offset bottlenecks in the retail financial advice channel.
UBS has increased its FY25-26 EPS forecasts for Challenger by 2% and 5%, attributing this to an additional $300 million per annum in lifetime sales to industry funds, which is expected to yield over an 11% return on invested capital for new growth capital. Consequently, UBS has upgraded its rating for Challenger to Buy from Neutral and raised the target price to $8 from $7.10. This switch aligns with our strategy to enhance portfolio yield and capitalize on emerging growth opportunities in the retirement market.
Challenger (CGF)
Current Allocation: 3%
Entry: <$6.85 | Target: $7.4 | Stop: $6.45
ADD +2% to 5% Allocation
Balanced Portfolio Recommendation: Switch 3% (Take Profit) Macquarie Group Ltd (MQG) to Challenger (CGF)
Date: 25/6/2024
*** GENERAL AVICE ONLY***
Challenger Limited (CGF), is an ASX-listed investment management firm with $117 billion in assets under management as of 31 December 2023. The company operates through its fiduciary Funds Management division and the APRA-regulated Life division. Challenger Life Company Limited, managing $24 billion in assets, is Australia’s largest provider of annuities and works closely with advisers to provide regular income to thousands of clients. Challenger Investment Management serves as an institutional manager focusing on a global fixed income opportunity set. Additionally, Fidante, a global investment management business, forms long-term alliances with top-tier investment managers, offering access to equity, fixed income, and alternative assets. Challenger is known for its robust management and innovative investment approach, ensuring substantial value creation and consistent income for its clients.
*** Trade Plan ***
We initially purchased Macquarie Group Ltd (MQG) at $181.7 and are now selling at $201, realizing a return of approximately 10.6% plus an additional 2.11% from dividend yield. We believe it is prudent to take profits now due to the significant rally in banking stocks and the upcoming bank reporting season in the US. This strategic move allows us to reduce risk in our portfolio.
We recommend reallocating this 3% to Challenger Limited (CGF) due to its higher yield and promising growth prospects. As Australians transition from accumulation to de-cumulation, UBS estimates that assets under management (AUM) in the retirement phase, now over $1 trillion, are growing faster than AUM in the contribution phase. UBS is optimistic about Challenger, highlighting its strong position as Australia’s largest annuity provider and the anticipated growth in its market. This growth is bolstered by closer collaborations with industry super funds, providing new distribution opportunities that offset bottlenecks in the retail financial advice channel.
UBS has increased its FY25-26 EPS forecasts for Challenger by 2% and 5%, attributing this to an additional $300 million per annum in lifetime sales to industry funds, which is expected to yield over an 11% return on invested capital for new growth capital. Consequently, UBS has upgraded its rating for Challenger to Buy from Neutral and raised the target price to $8 from $7.10. This switch aligns with our strategy to enhance portfolio yield and capitalize on emerging growth opportunities in the retirement market.
MQG
Entry: $181.70 | Exit: $201 | Profit: 12.71% (plus franking credits)
CGF
Entry: <$6.85 | Target: $7.4 | Stop: $6.45
Switch 3% of Portfolio Allocations
Disclaimer: The recommendation given is general advice only. It does not take into account your personal objectives, financial situation, or specific needs. This information should not be your sole resource when making such decisions. We strongly recommend you to seek the advice of financial, taxation, and legal professionals before finalising any investment decisions.