Insights

Challenger (ASX:CGF) share price dips after revised capital measures

Enhanced risk settings reduce targeted pre-tax return on equity by 2% to RBA cash rate plus 12%.
The post Challenger (ASX:CGF) share price dips after revised capital measures appeared first on The Motley Fool Australia. –

It appears the investment management company’s investor day presentation hasn’t done the Challenger Ltd (ASX: CGF) share price any favours.

After closing yesterday at $5.65, the Challenger share price dipped by 5.31% to $5.35 in early morning trade. It has since rallied and, at the time of writing, shares are swapping hands at $5.49, down 2.9%.

Let’s take a look at what details were shared with investors this morning.

Why is the Challenger share price falling?

Investors have been selling out of the retirement-centric asset manager today following the release of its investor day presentation.

Challenger reaffirmed its FY21 guidance will be at the bottom end of its $390 million to $440 million range. This information had already been shared towards the end of April, sending the Challenger share price 20% lower in a week.

Management provided an update on its strategy and outlook following a period of disruption.

As a capital measure, Challenger has revised its targeted prescribed capital amount (PCA) from 1.45 times to 1.6 times. The increase in the risk setting will dampen the fund’s return on equity by roughly 2%.

As a result, the company also revised its pre-tax return on equity target to the Reserve Bank of Australia cash rate plus 12%, down from plus 14%.

Commenting on the change, Challenger CEO and managing director Richard Howes said:

Our strategy to grow sees us building further on our already strong retirement brand and customer franchise. It’s essential we protect this valuable asset to support our long-term growth and success. To this end, we are enhancing our risk settings, reflecting our commitment to maintain our strong capital position.

Fundamentally, this means the fund manager is reducing the risk exposure of its fund by keeping more cash up its sleeve. However, less risk means less potential reward for those retirees.

Looking to FY22

The company’s normalised net profit before tax guidance for FY22 has failed to put the Challenger share price in the green. An estimated range between $430 million to $480 million was provided by the fund manager.

Management believes the midpoint of $455 million represents their best estimate. The FY22 forecast represents a 17% increase compared to FY21.

Despite the positive estimate, Challenger’s share price is struggling to find its footing today. However, the company’s shares have rallied 11.68% in the past month.

Listed investment company, Wam Leaders Ltd (ASX: WLE) added the annuity business to its portfolio back in April.

The post Challenger (ASX:CGF) share price dips after revised capital measures appeared first on The Motley Fool Australia.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of May 24th 2021

More reading

ASX 200 down 0.3%: Coles and Challenger updates, gold miners sink

WAM Leaders thinks these ASX shares might be buys

What happened with the CBA (ASX:CBA) share price this week?
Hot ASX sector with ‘easily’ 10% to 15% upside in coming months: analyst

Why we love this cheap ASX 200 share: Wilson

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Challenger Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;


To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.


An active and funded account with a positive trading balance is required to continue to have access to the tools;


Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;


Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!