Challenger: Changing the face of Supers

Challenger (CGF) has perfectly positioned itself for structural investment changes that took place following the global financial crisis.

Source: Bloomberg

With many superannuation funds – particularly Self-managed Super Funds (SMSFs) – decimated in the fallout from the recession, most have turned to the safety of annuities provided by the likes of Macquarie Bank, AMP and Challenger as a place to store their retirement savings.

As Challenger specialises in retirement income products and have the dominant market share in Australia, the country's ageing demographic will only strengthen their position going forward. With this in mind, there are three reasons I especially like Challenger (CGF):

Firstly, a strong tailwind from retirement products. CGF saw sales growth of 28% in FY14 and consensus growth forecasts a similar print in FY15 and FY16. This, coupled with the structural change in Australia’s demographic, may see sales figure improving beyond two-year forecasts.

Secondly, CGF’s other business areas are seeing similarly strong growth. Its fund management division saw growth of 27% in FY14, with significant additional capacity. It is diversifying earnings and offerings, as well as increasing its exposure to higher-growth markets.

Lastly, the company’s balance sheet is solid, as it recently raised $250 million to solidify its capital base. The multiples also are appealing, at 13 times FY15 earnings estimates.

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