At the time of writing, Challenger Limited [ASX:CGF] shares are trading at $7.95, marking a 13.81% fall from yesterday’s market price.
The drop has likely come about from the company’s earnings and guidance update, released on the ASX early this morning.
With clear and severe impact on earnings in the first half of FY19, investors are no doubt unimpressed with the lack of growth for Challenger.
Challenger share price shows concerning earnings update
The update revealed unimpressive profit returns compared to FY18, which they attribute to ‘increased market volatility’ during FY19.
Cash distributions for Challenger Life — a leading provider of annuities in Australia — were down $13 million from the prior corresponding period.
They are also experiencing lower Funds Management performance fees, which have gone from $6 million in 1H18 to just $2 million in 1H19.
Of more concern are the statutory net profit estimates. Challenger expects investment experience of -$194 million after tax for 1H19, with a statutory net profit after tax of only $6 million.
Challenger has labelled the cause of the poor result as under performance of Life’s investment assets. This, they believe, is due both to lower equity markets and wider fixed income credit spreads.
Challenging future for Challenger share price
The official report for H1FY19 results is expected on 12 February.
In this update, however, Challenger provided an estimate of their full-year normalised net profit before tax for FY19. They expect it to fall within the range of $545–$565 million.
Earlier guidance updates revealed expectations of a potential 8–12% growth. So even the company has lost some optimism.
However, CEO Richard Howes assured investors of Challenger’s ability to overcome this difficult market period:
‘Challenger has a strong track record of success through the cycle, which gives me confidence in our performance over the long term. We continue to be well placed to take advantage of growth in the retirement income market.’
The results announcement in February will solidify the 1H19 progress for Challenger.
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