CGF - Challenger Limited

[kermit345]

Hi skc,

Haven't posted in these parts in a long time but took an interest at your post given I've been invested in CGF previously and we use their products in our financial planning office. Annuities can be structured in a few different ways but basically you put $x amount in, and you can choose the period of time to receive payments and whether there is any residual at the end of that time. So you might have a 5 year annuity starting with $100,000 and finishing with $0 receiving payments monthly with no indexation of payments. I just quickly ran a quote based on this setup and the payment was $1,795 a month with an earnings rate of approximately 3.00%.

This earnings rate is pretty typical of annuities at the moment and so you can see they don't have to invest the money very aggressively to earn the amount required to pay the annuity and still make a nice margin on the annuity for themselves. And because everything is fixed when the annuity is put in place they can easily manage their risk levels etc based on performance of their investments.

As you say if there is a shortfall they would need to make up said shortfall themselves however given they run the funds management section of the business as well as making a decent margin on the annuities historically I don't think they'd struggle too much to meet the annuity payments in these down markets.

My original thesis for investing in CGF was the aging population which has less tolerance for risk following the GFC and the benefits of having a funds management arm that will likely steadily increase as people are required to receive 9.5% SGC each year anyway. I sold my holding after making a decent gain thinking they were starting to get a little overvalued and that was when they were around $6.50 just a year or so ago and it seems I was wrong. I still think my investment thesis stands but whether they are value or not at the current price is another question.

 

[skc]

Hi skc,

Haven't posted in these parts in a long time but took an interest at your post given I've been invested in CGF previously and we use their products in our financial planning office. Annuities can be structured in a few different ways but basically you put $x amount in, and you can choose the period of time to receive payments and whether there is any residual at the end of that time. So you might have a 5 year annuity starting with $100,000 and finishing with $0 receiving payments monthly with no indexation of payments. I just quickly ran a quote based on this setup and the payment was $1,795 a month with an earnings rate of approximately 3.00%.

This earnings rate is pretty typical of annuities at the moment and so you can see they don't have to invest the money very aggressively to earn the amount required to pay the annuity and still make a nice margin on the annuity for themselves. And because everything is fixed when the annuity is put in place they can easily manage their risk levels etc based on performance of their investments.

As you say if there is a shortfall they would need to make up said shortfall themselves however given they run the funds management section of the business as well as making a decent margin on the annuities historically I don't think they'd struggle too much to meet the annuity payments in these down markets.

My original thesis for investing in CGF was the aging population which has less tolerance for risk following the GFC and the benefits of having a funds management arm that will likely steadily increase as people are required to receive 9.5% SGC each year anyway. I sold my holding after making a decent gain thinking they were starting to get a little overvalued and that was when they were around $6.50 just a year or so ago and it seems I was wrong. I still think my investment thesis stands but whether they are value or not at the current price is another question.

Thanks for the information and insight. I read your post soon after you posted, didn't have the time to post an intelligent response.

I guess what I am thinking is that... to generate any return, there has to be risks (given we are in the negative rates era). Even a 3% guaranteed return for the next 25 years is hard to achieve without risks. It will most certainly involve credit risks, currency risks and counterparty risks. The question of course is what a "blow up" scenario looks like and how (or if) one should discount for that...

 

[greggles]

Dividend darling Challenger Limited has copped a flogging in 2018, sold down from $14.25 to $10.50 in the space of four months. However, the pain now appears to be at an end with a solid bounce back over the last week.

It gapped up nicely this morning with yesterday's price action setting the stage for today.

 

[mcgrath111]

CGF down to 9.50 at last close, can't see any recent news as to what might explain the downtrend? Is it just mimicking the ASX 200?

 

[Miner]

CGF down to 9.50 at last close, can't see any recent news as to what might explain the downtrend? Is it just mimicking the ASX 200?

Astrologers @mcgrath111 and @greggles
Good morning and your fear has come to truth unfortunately with market announcement and punishment by market. Probably it will be more severe once people get more panicked with rest of market
DNH

 

[bigdog]

23/01/2019 9:18:11 AM Earnings and guidance update

Share price crash today follow ASX ann below
According to the release, the company expects to report a normalised net profit before tax of $270 million and a normalised net profit after tax of $200 million for the first half of FY 2019. This will be a 1.8% and 3.8% decline, respectively, on the prior corresponding period.

Management advised that its first half earnings have been impacted by increased market volatility during the half. This includes lower cash distributions on Life’s absolute return portfolio, which was $13 million lower than the prior corresponding period.

In addition to this, the company experienced a $4 million decline in Funds Management performance fees compared to the same period last year.

On a statutory basis its result looks much worse as it includes valuation movements on assets and liabilities supporting the Life business, which results in investment experience.

Challenger expects to report a first half investment experience of negative $194 million (after tax), resulting in a statutory net profit after tax of just $6 million.

 

[mcgrath111]

Shorts did there homework.
Could be seeing a close under $8.

 

[So_Cynical]

7 something now - back to where i wanted to buy it 4 or 5 years ago, prob should be buying this.

 

[Miner]

7 something now - back to where i wanted to buy it 4 or 5 years ago, prob should be buying this.

It is still just below $8. Was $7.7 the lowest in the morning.
Generally market is down so that could have added to CGF.
Would you now buy it at $7.9?

 

[So_Cynical]

It is still just below $8. Was $7.7 the lowest in the morning.
Generally market is down so that could have added to CGF.
Would you now buy it at $7.9?

Thinking about it - IOOF has gone up steadily since that one bad day. 4.28 to 5.38 over about 7 weeks.

 

[tinhat]

I've had CGF on my watch list for a while now so I bought a small parcel today.

 

[Miner]

Partners in crime @tinhat and @So_Cynical .
I did not want to wait too long and bought a small parcel of CGF just now.

 

[So_Cynical]

Ok ill put a low ball buy order in and see if i get filled tomorrow.

 

[mcgrath111]

Thinking about it - IOOF has gone up steadily since that one bad day. 4.28 to 5.38 over about 7 weeks.

Agreed, yet CGF is far stronger on fundamentals.

Think you may get your order filled, some big orders went through at closing.

 

[So_Cynical]

Agreed, yet CGF is far stronger on fundamentals.

Think you may get your order filled, some big orders went through at closing.

IOOF was and perhaps still is bleeding FUM, CGF is just having a bad year same as all the other managers, can an annuity be cancelled or handed back? i wouldn't of thought so but dont know.

 

[tinhat]

Partners in crime @tinhat and @So_Cynical .
I did not want to wait too long and bought a small parcel of CGF just now.

This share could easily drop into sub $7

I want to repeat that I bought a small holding today. I aim to hold shares for the medium term and I add to and cull holdings as needed. In the past few days I have sold out of IRI and CGC, both at profit.

All cool but I would absolutely hate to be even remotely seen as a part of any sort of sentiment. I'm just an anonymous fool in a hat.

Buying a falling knife right now is fraught with risk.

Each to their own. As a disclaimer, I run three portfolios, one for my mum which is in pension mode, so most of the shares I manage are for dividend. Also, I invest according to the thesis that the return from owning shares in the bank is superior to holding deposits with the bank, but that carries risk. Long story short, I am probably happier to carry more risk than others. Not because I am managing more money than most (far from it) but because of this God-damned hat.

 

[Miner]

This share could easily drop into sub $7

I want to repeat that I bought a small holding today. I aim to hold shares for the medium term and I add to and cull holdings as needed. In the past few days I have sold out of IRI and CGC, both at profit.


View attachment 91611

All cool but I would absolutely hate to be even remotely seen as a part of any sort of sentiment. I'm just an anonymous fool in a hat.

Buying a falling knife right now is fraught with risk.

Each to their own. As a disclaimer, I run three portfolios, one for my mum which is in pension mode, so most of the shares I manage are for a dividend. Also, I invest according to the thesis that the return from owning shares in the bank is superior to holding deposits with the bank, but that carries risk. Long story short, I am probably happier to carry more risk than others. Not because I am managing more money than most (far from it) but because of this God-damned hat.

Mate @tinhat
If I am reading between lines, rest assured my decision to buy a small parcel today was not driven by your decision. It was a pun to say partners in crime.
Ironically I put another parcel at the lowest price it closed today thinking it will not achieve but that was also bought and shares would most likely to fall more tomorrow. Technically CGF though was recommended by few brokers, would get a southface warning from today's fall (and tomorrow). Brokers can only predict as they are told and as they want to manipulate the market.
When I reviewed some of the substantial holder purchases by CGF was sour. We may ask the question these companies are also driven by so-called professionals who also have lots of tools, research and how come they make mistakes? That is the game unfortunately and otherwise, everyone would have made money.
I would be watching on CGF to re-enter into more opportunities taking my emotion out of it.
On the hindsight, I was to enter into at $8+ figure because one so-called financial expert broker advised me to BUY but I stayed away until today. I always considered CGF has fundamentals right and I will never able to predict the bottom most price. It is within ASX 200 so surely the financial institutions will buy and keep it alive if not immediately but in this financial year for sure.
So enjoy the market tomorrow once again, we all do our own risks and decisions.

 

[tinhat]

Mate @tinhat
If I am reading between lines, rest assured my decision to buy a small parcel today was not driven by your decision. It was a pun to say partners in crime.
Ironically I put another parcel at the lowest price it closed today thinking it will not achieve but that was also bought and shares would most likely to fall more tomorrow. Technically CGF though was recommended by few brokers, would get a southface warning from today's fall (and tomorrow). Brokers can only predict as they are told and as they want to manipulate the market.
When I reviewed some of the substantial holder purchases by CGF was sour. We may ask the question these companies are also driven by so-called professionals who also have lots of tools, research and how come they make mistakes? That is the game unfortunately and otherwise, everyone would have made money.
I would be watching on CGF to re-enter into more opportunities taking my emotion out of it.
On the hindsight, I was to enter into at $8+ figure because one so-called financial expert broker advised me to BUY but I stayed away until today. I always considered CGF has fundamentals right and I will never able to predict the bottom most price. It is within ASX 200 so surely the financial institutions will buy and keep it alive if not immediately but in this financial year for sure.
So enjoy the market tomorrow once again, we all do our own risks and decisions.

Hi @Miner

I have been reading your posts here for some time. I am just mindful about people reading the last few posts about this stock and thinking that this is a buy in the current sentiment not understanding the downside risk. As I said above all cool.

My aim is to hold stocks for the long term but I find that hard to do. Essentially annuities are all about charging a premium to the depositor for taking on the risk of a fixed rate of return. Assuming that the business is being managed well, that is the side of the ledger I want to be on understanding that the ride will be bumpy.

 

[Miner]

Hi @Miner

I have been reading your posts here for some time. I am just mindful about people reading the last few posts about this stock and thinking that this is a buy in the current sentiment not understanding the downside risk. As I said above all cool.

My aim is to hold stocks for the long term but I find that hard to do. Essentially annuities are all about charging a premium to the depositor for taking on the risk of a fixed rate of return. Assuming that the business is being managed well, that is the side of the ledger I want to be on understanding that the ride will be bumpy.

Hello @tinhat
I am listening to what you are trying to convey and value your concerns.
People who are reading this and other threads are all sensible people.
This is a free website and no one puts recommendation here excepting sharing their own research and comments.
So I am not worried if someone makes a judgment on them. Yes, if someone tries to ramp up or down a stock that will be in my opinion totally unethical and against the intent of this lovely forum. I really like this forum.
Now, look at those paid newsletters. Share Advisor of MF - has not scored positive more than 10% of their recommendations in the 2018 calendar year. They charge a fortune among some 12 different newsletters. No one complains there even if MF clearly says buy this and that. So why should people complain here? HC gets all goss and they have thousands of followers.
On the contrary, many of the posters in ASF are bloody intelligent and smart. They share their knowledge freely for a broader community and most of the times excepting a like comment, many of us do not even thank them.
So I would not make any drama on our postings so long our intention is right and transparent as well as seen to be transparent and honest.
As far as my postings on this thread are concerned, they were my thoughts and comments with sounding from others either for or against. I consider you did the same on CGF. Sometimes I do PM to some of the stalwarts. They are always nice to share their thoughts and I learn from their thoughts shared through PM as well as on this forum. I am greatly thankful to them without any caveat.
So - let us move and no stress.
Sorry folks to digress from CGF. But I thought it is important to share our intent openly so that anyone on the sideline must not read between the lines.
I will take a break from the CGF thread until 27 Jan. For any comments, PM is welcome.
Cheers
disclaimer - holding CGF from today with the intent to hold for 12 months unless it goes below my stop loss target.

 

[So_Cynical]

Essentially Challenger is a fund manager with a difference, the difference being product, an annuity is more like a contract or commitment - a kind of promise like insurance, i imagine that annuity money is stickier than FUM for a normal manger like Platinum etc.

Their customers are different too because they are all pretty much retirees that need retirement income.

If you would like to cancel your annuity, in most cases you will receive a return of your investment but you may receive back less than you invested originally and less than you would have received had you held the annuity for its agreed term.