ASX-listed investment firm Challenger has seen more than $700 million wiped off its market value in a single day after reporting flat profits and reduced dividends, bringing an end to the company’s six-month growth streak.
Challenger’s stock slid by around 15 per cent on Tuesday having doubled since August and while chief executive Richard Howe said he did not follow daily share price movements, he acknowledged the defensive investment strategy adopted during COVID-19 had disappointed shareholders. The shares closed 14.82 per cent weaker at $6.15 per share.
The market reaction came as Challenger reported its statutory profit had increased by only 1 per cent to $233 million since the same period last year and told shareholders they would receive a dividend of 9.5 cents per share, 46 per cent lower than the same period last year.
However, Mr Howe said shareholders should brace for stronger headline numbers in the future as Challenger looks to deploy $1 billion in capital to higher yielding assets and finalises the acquisition of a small bank, MyLife MyFinance, for $35 million.
“I’m pleased with the progress we’re making on a number of fronts,” he said.
Shaw and Partners senior investment adviser Adam Dawes, who has had a sell recommendation on Challenger for the past three years, said the company had long been a reliable source of dividends and pinned the investor sell off on the scaled back yield.
“The Australian market is looking for income this year,” he said.
Morningstar analyst Shaun Ler said despite the negative market reaction the fundamentals of the business were strong. “I expected the market to respond more positively,” he said. “The results of today are not reflective of the future, it’s reflective of what’s happened in the past.”
Despite the market sell off, Challenger saw funds management net inflows of $6.4 billion and group assets under management grow by 13 per cent.
Meanwhile, major shareholder Argo Investments portfolio manager Andy Forster said it was not surprising Challenger’s six-month rally had come to an end and said the correction was driven by the management’s refusal to tighten its bottom end guidance.
Challenger claims it is on track to deliver profits of $390 million and $440 million for the year. Mr Howes said the $50 million range was “appropriate” to accommodate variations in the investment portfolio, adding he was pleased to see annuity sales grow by “a record amount” of 12 per cent to $2.2 billion over the past 12 months.
Mr Howe predicted further growth in annuities following the federal government’s retirement income review that promoted the retirement income covenant – a policy that would force super funds to tailor retirement solutions for its members.
“We were pleased to see the review acknowledged the importance of the retirement phase in the system,” Mr Howe said. “The retirement phase needs to evolve from a policy perspective to deliver better outcomes for retirees.”
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Source: Thanks smh.com