Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. Morningstar last week raised its fair value estimate for Challenger marginally to $7.90 per share (from $7.80), due to the time value of money and higher expected annuity sales, partly offset by narrower earnings margins in the future. The division’s strong performance and distribution efforts are likely to help it regain its lost mandates when appetite for listed assets returns over the medium term.” “We think funds management’s net outflows are cyclical. He also sees some upside to Challenger’s struggling funds management business. Stronger earnings growth is likely if this favourable mix shift persists." They are higher-margin and longer-dated than Challenger’s institutional products. "We like that retail annuities are growing as a proportion of fixed-term product sales, and lifetime annuity sales are picking up pace. Margins expanded from higher investment yields, and reinvestments from existing clients were strong. "Rising rates will likely keep driving the life business’ growth, improving both volumes and margins," Ler said adding that annuity sales to new clients continued to grow. The business is also well positioned amid rising interest rates. "The long-awaited turnaround in Challenger’s earnings is playing out," Ler said. The result was dragged down by sluggish earnings in its funds management unit (in part because of the volatile markets), however Challenger has since offloaded its dud bank.Īccording to Ler, the company’s fundamentals are strengthening despite these challenges. Indeed, sales surged by 11% and with the rising interest rate environment, Challenger also reported increasing demand for guaranteed income with advisers recommending longer term annuities.
#AMP STOCK FORECAST FULL#
The annuity giant posted a 5% lift in net profit for its full year results, underpinned by the strong performance of its annuity business. Ler also has an optimistic assessment for Challenger, albeit the firm faces an even brighter future. “If AMP executes well on these fronts, we see the room for underlying net profit to compound over the longer term,” Ler says. The wealth manager also needs to continue to improve investor inflows into its products and focus on cutting costs from the loss-making advice business. Ler also believes that AMP could also garner higher bank margins from the rate rises by suppressing deposit rates – a strategy used by the big banks.
He notes that AMP’s simplification of its master trust products is largely complete while work in reversing the advice business losses is progressing well as practices are consolidated. On this front, Ler notes that good progress has been made operationally.
“I imagine shareholders will be frustrated by the slow progress towards profitability. However, he acknowledges that it is a patience game for investors with AMP. “Numerous forecast improvements underpin our view that earnings prospects are positive over the long-term,” Ler says. While the 34% drop in AMP’s underlying net profit missed Morningstar’s expectations, analyst Shaun Ler believes that the downside risk for the business is pretty much already priced in. However, an insight into their fiscal results this earnings season has highlighted a better outlook for both businesses. High profile executive staff departures plagued AMP as the business also confronted loss in its advice network. Challenger Financial Group ( CHF) and wealth manager AMP ( AMP) have confronted some difficult years.Ĭhallenger’s annuity business was impacted with the record low interest rates of previous years and was further burdened with a loss-making bank.
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