CGF

Challenger Financial (CGF) have a Buy 2 share trading recommendation and a price target of $5 per share from stock analyst UBS. The analyst sees the following positives for Challenger Financial: (1) earnings revisions (2) balance sheet capacity/flexibility (3) specialist funds capabilities emerging (4) investment spread expanding. Risks for CGF: (1) Mortgage Mgt potentially harvesting (2) lumpiness in asset recycling (3) execution on deals. The diversified financial company have released December 2006 annuities data which comfirms CGF's market position. Total annuity market sales were $111.1m in Dec06, dn 6.9% seq and 12.6% on pcp. However CGF sales of $32.3m were up 13.1% seq and 10.3% on pcp. As a result CGF's market share climbed to 29% of new sales in Dec06 from 23.9% in Nov06 and 23% at Dec05. Growth came from long-term annuities, a key funding source for CGF's Asset Mgt business. CGF recently announced the zero cost acquisition of Metlife's $2bn annuities and personal super business. Although the transition of $2bn in cash and fixed income securities to CGF's preferred portfolio asset allocation may take 3 years, the analyst sees significant potential earnings upside from this acquisition. In the analyst's view CGF remains a key pick in financials and value CGF's Asset Mgt business (FY07 basis) at: (1) $2.13 for 1.5x historic cost net assets (i.e. the balance sheet), and (2) $0.44 for 10% of specialist FUM (i.e. the off-balance sheet). This does not capture unrealised gains or potential growth if Challenger Financial can recycle or originate new assets into funds.

Challenger Financial Services (CGF) have a Buy 2 share trading recommendation and a price target of $5 per share from analyst UBS. The analyst has observed that the Challenger Fiannacial has acquired $2billion book of annuities for zero cost. CGF will assume $2bn of assets (& liabilities) from MetLife around July 2007. CGF will take up to $10m of one-off restructuring charges for the integration of the portfolio. The transfer consolidates CGF's position as the number 1 provider of annuities in Australia. CGF's investment strategy for its Asset Management balance sheet has been diversified across fixed income, real estate and infrastructure. The MetLife portfolio is generating close to zero net income spread with 50/50 cash/fixed income asset allocation. CGF's opportunity is to progressively improve the investment spread via diversification seeking increased risk/reward. Earnings forecasts are unchanged at this stage, but they note material potential accretion in future periods. e.g. 2% net investment spread and $10m ongoing incremental costs translates to 10% potential accretion to FY09E earnings. They note that CGF delivered 3.5% underlying investment spread (plus realised gains) in 1H07. Positives for CGF the analyst found are: (1) earnings revisions (2) balance sheet capacity/flexibility (3) specialist funds capabilities emerging (4) investment spread expanding. Risks for Challenger Financial: (1) Mortgage Management potentially harvesting (2) lumpiness in asset recycling (3) execution on deals. Price Target is SOTP based.

Challenger Financial Services Group (CGF) has a Buy 2 share trading recommendation and a $5 price target from analyst UBS. The analyst have gone through the 1H07result numbers, which were good but challenging to dissect. Baseline NPAT $96m vs. UBS estimates of $87m. 1H07 reported NPAT of $113m was up 95% on pcp (& seq). Excluding $13m post-tax on CIF and $4.2m post-tax on rental one-offs $96m is a better base-line NPAT. Effective tax rate appears low at 24.8% but is not inconsistent with prior periods. 5cps dividend was vs. UBS estimate of 5.5cps. Another upgrade, this time due to: (1) higher investment spread in Asset Management (2) operating leverage, with EBIT margin 52% in 1H07 from 43% in 2H06. Earnings upside exists if CGF can continue to exceed RONA hurdles. Analyst earnings growth slowdown (9%/10% 08/09E) is predicated on reversion to 'normalised' RONA c.19%. CGF delivered 1H07 (vs. pcp): Funds Managemnt: EBIT +141% at EBIT mgn 30.6%, RONA 25% on FUM growth of 29.7%. Mortgage Managemnt: EBIT +19% at EBIT margin 59.4%, RONA 20.8% on Mortgage book growth of 12%. Asset Mgt: EBIT +46% (ex CIF) at 73% EBIT mgn, RONA 26.6% on Asset growth of 39.8%. Financial Planning: EBIT dn to $3.3m from $6m at EBIT mgn of 13.6%, RONA 4.5% and $7.7bn FUA. Positives observed by analyst include: (1) positive earnings revisions (2) balance sheet capacity (3) specialist funds capabilities emerging (4) investment spread expanding. Risks include: (1) Mortgage Mangement potentially harvesting (2) lumpiness in asset recycling (3) execution on deals. PT is SOTP based.

Challenger Financial Services (CGF) have maintained their Buy 2 shares recommendation and a $5 share price target from shares analyst UBS. The analyst notes the following positives: (1) positive earnings revisions (2) balance sheet capacity and growth (3) specialist funds capabilities emerging (4) investment spread expanding due to back/front book dynamics. Key risks: (1) Mortgage Mgt potentially harvesting the back book (2) some lumpiness in asset recycling (3) execution on deals. They note the key trends: Funds Mgt FUM +13.3% in Dec Qtr, +29.7% 12mths to Dec06. Mortgage Mgt loans up 1.5% in Dec Qtr, but just 1.0% in resi lending. Total loans up 9.6% in 12mths. Asset Mgt b/s grew 6.1% during the Qtr - off balance sheet FUM up 68% or ~$800m during the Qtr driven by CDI listing. Financial Planning metrics disclosed showed encouraging 6.7% growth in funds under advice during the Dec Qtr. Funds Mgt growth the key driver of upgrades, with some offset in Mortgage Mgt. Asset Mgt off balance sheet FUM growth has the potential to drive further incremental upgrades. They note that this is the 3rd earnings upgrade delivered since the FY06 result in Aug06.

Challenger Financial (CGF) has a Buy 2 shares recommendation and a $4.60 share price target from shares analyst UBS. CGF have reviewed their balance sheet structure. The shares analyst has noted that CGF has a relatively unlevered balance sheet with gearing of just 4.4% at 2H06. However CGF does have non-recourse leverage, for example $286m of debt held against balance sheet property. Given improved earnings stability, strong growth and outlook, UBS see CGF potentially increasing its financial leverage during the next 12 months. UBS poses the next hypothetical case study: "On a quick "what if?" analysis we estimate c10% EPS accretion for CGF assuming $300m of debt and 15% pre-tax return on those funds. Gearing would remain comfortable at < 20% and EBIT interest cover at > 12x. A buyback of $300m at $4.25 would be 3.8% accretive on our estimates." UBS notes that CGF remains a key pick in financials. They see upside risk to earnings in Funds Management given strong FUM growth and CGF-specific performance. With c$1.6bn of b/s liquidity we see CGF Asset Mgt as cum-investment. We believe the past 2 yrs of b/s tidying present cap mgt opportunities. UBS sees the following Key positives: (1) positive earnings revisions (2) balance sheet capacity and growth (3) specialist funds capabilities emerging (4) investment spread expanding due to back/front book dynamics. Key risks for Challenger Financial: (1) Mortgage Mgt potentially harvesting the back book (2) some lumpiness in asset recycling (3) execution on deals.

Challenger Financial (CGF) has a Buy 2 stock recommendation from stock analyst and investment banker UBS with a share price target of $4.60. The company has reduced its stake in CIF to 37.7 percent and will book about $4m gain on the sale of 39.3 million shares in CIF at $3.50 (vs. the market price $3.24). More importantly CGF will now account for distributions from CIF (as a portfolio investor) rather than consolidate earnings (as a majority owner). This drives material earnings upgrades from the stock analyst.

Challenger Financial (CGF) have an unchanged Buy 2 recommendation and a share price target of $4.20 from stock analyst and investment bank UBS. UBS have noted that Asset management side of the business have exceeding expectations on and off balance sheet growth. UBS note that " Specialist funds now $1.3bn with $0.5bn more listed this week (CDI). Assets mgd for Life Co. (on bal. sheet) also likely to grow after 3 yrs of portfolio realignment. Portfolio mix is trending towards targeted 30/30/30/10 mix of prop/infra/FI/other.

SB Citigroup has a hold, high risk rating for Challenger Financial Services Group (CGF), all the while increasing their target share price from $4.10 to $4.15. "The analysts note, however, they believe the risk/reward equation has come more into investors' favour in recent weeks as Challenger's share price has fallen 8% since the release of its 1H06 result.

Macquarie Research Equities (MRE) has an outperform recommendation on Challenger Financial (CGF) with a price target of $4.32. The Challenger Financial stock price (CGF) rallied this Monday morning after announcing its 31st March06 Assets and Loans Under Management and Figure of $35.3 billion. MRE remains bullish on the prospects for Challenger (CGF) and believe that earnings per share growth over the next few years should remain very strong and the stock remains an attractive play at present levels. MRE's target of $4.32 per share is a premium of 18 per cent over today's price.