Analyst Note| Shaun Ler |
No-moat Challenger had a solid first half, with normalised NPAT up 21% from the prior period to AUD 238 million. The annuity book and assets under management, or AUM, both grew and margins were stable. Product sales of AUD 4.9 billion equaled the whole of fiscal 2017--pre-Royal Commission disruptions. Net funds management inflows were AUD 900 million. Lower interest on annuities supported margins. AUM growth outpaced cost growth, which lowered the group cost/income ratio by 0.9% to 38.1%. But it wasn’t all roses. Maturity rates are set to grow with more sales of short-dated institutional annuities, tight credit spreads limited investment returns, and Challenger will pay higher interest on annuities in the future. All will weigh on margins.