Shares in fund manager Challenger Ltd (ASX: CGF) have lifted around 4% today as investors buy into its plans to become one of Australia's premier financial services businesses.
Challenger operates two businesses, a life business and a funds management business.
The life business targets retirees in the drawdown phase of superannuation. This is an increasingly large demographic and Challenger's products are logically popular with those seeking guaranteed cash flows with protection against market, inflation and longevity risks.
In FY14 the group sold $2.8 billion worth of annuity products and sales have grown at a 40% compounded annual growth rate over the past five-year aftermath of the GFC.
The group also has a significant funds management business which is underpinned by the growth in mandatory superannuation contributions over time. The group has around $47 billion in funds under management. This means it is not too far behind rivals like BT Investment Management Ltd (ASX: BTT), which is the funds management arm of Westpac Banking Corp (ASX: WBC).
Challenger also recently announced that retail shareholders on the register as at August 19 have the opportunity to participate in a share purchase plan up to the value of $15,000 at a price which will likely be discounted versus today's prices around $7.74.
Challenger is raising capital to fund APRA's regulatory requirements to maintain capital as its annuities business grows.
The group retains a strong outlook and trades on just 12.8x analysts' forecasts for earnings per share of 60.4 cents in FY15.
At $7.74 Challenger looks to offer some decent value. Buying shares that deliver on value, not price is one of the best ways to deliver growth and is the core strategy of world-famous investors like Warren Buffett.
