Challenger Ltd Footprint expansion and decent cash operating earnings guidance for FY17

Footprint expansion and decent cash operating earnings guidance for FY17: Challenger Ltd recently raised $460 million through issuance of 4.6 mn notes for $100 each and has closed its Capital Notes 2 offer. During H1FY17, CGF reported a normalised net profit after tax (NPAT) at $196.6mn (8% growth). Total Group assets under management (AUM) grew by 12% yoy to $64.7bn during the same period. However, statutory NPAT declined by 14% to $202mn (against 1H16 figure of $234 million) largely due to a significant one-off item. Further, during H1FY17, cost to income ratio improved by 90 basis points (bps) to a record low of 32.9%.  Normalised pre-tax return on equity (ROE) increased by 60 bps to 18.7%, while normalised earnings per share rose 7% to 35.0 cents per share (cps). Company is expected to report cash operating earnings of $620mn-$640mn in FY17 and overall normalized pre-tax ROE of 18% while maintaining a 45-50% fully franked dividend payout. CGF recently formed an annuities distribution relationship with MS Primary (a leading provider of Australian dollar annuities and life insurance products in Japan) and launched a new Australian dollar annuity product in Japan. The market in Japan for Australian dollar annuities is estimated to be 7x the size of the Australian market driven by ageing population coupled with low domestic interest rates. This partnership has already delivered sales of $125 million for Challenger during the initial two-month period till 31 December 2016.    

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