Why is the Challenger (CGF) share price on fire?

Posted: 7 July 2021 1:26 pm
News
Challenger-Shares_1800x1000_Finder (1)

Shares in the financial services giant have already risen nearly 20% over the last 12 months.

Shares in financial services giant Challenger Ltd (ASX: CGF) are among the biggest gainers on the ASX boards on Wednesday. At the time of writing, the stock had jumped nearly 12% to $6.10 and given the unusually high volumes, isn't showing any signs of losing momentum.

What is driving the Challenger stock price?

The Challenger stock price shot up after US-based retirement services provider Athene Holding and private equity firm Apollo Global Management acquired a 15% stake in the Australian investment manager. The 2 investors now have a total 18% stake in Challenger.

Athene purchased the shares at $6 each, a 10% premium to Challenger's Tuesday closing price of $5.47.

The stake buy comes after years of speculation that Challenger could be a takeover target. In the past year alone, private equity firms including The Carlyle Group and Ares Management have been talked about as suitors for the business.

Athene itself is an annuities provider with more than US$200 million of total assets, and is set to merge with Apollo Global.

"Athene and Challenger share the same mission – to provide customers with financial security for retirement," Athene said in a statement.

"Athene and Apollo see attractive long term opportunities in partnering with and supporting Challenger's continued growth as minority shareholders."

Capital intensive business

Last month, Challenger reaffirmed that its FY21 guidance will be at the bottom end of its $390 million to $440 million range, prompting a sell-off in the stock. It also provided an update on its outlook after the disruption from COVID-19 over the last year.

Challenger also raised its targeted prescribed capital amount (PCA) from 1.45 times to 1.6 times in a move to reduce risk and preserve capital, resulting in the lowering of the fund's return on equity.

This comes after a $300 million equity raising last year to strengthen its capital position.

At the same time, its non-annuities businesses continue to perform strongly. Challenger's acquisition of digital bank MyLife MyFinance is on track for completion, while its Fidante funds management business has continued to thrive, winning mandates in the UK and expanding into Singapore.

That could see earnings rise to between $430 million to $480 million in FY 22, giving investors more to cheer about. The Challenger stock was already up nearly 20% in the last year, before Wednesday's jump.

Considering buying Challenger shares?

If you are keen to buy Challenger shares, you should consider investing through an online share trading platform.

Keep in mind that not all platforms offer the same list of stocks. Some trading platforms offer US stocks only, so make sure to select a platform that offers ASX-listed stocks.

Choose from the dozens available for Australian investors. Compare the features and fees from the plethora of trading platforms available for Australian investors.

Looking for a low-cost online broker to invest in the stock market? Compare share trading platforms to start investing in stocks and ETFs.

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

Get more from Finder

Ask an Expert

You are about to post a question on finder.com.au:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms of Use, Disclaimer & Privacy Policy and Privacy & Cookies Policy.
Go to site