If an investor or a fund has 10% or more of a portfolio invested in one stock, it's fair to say that they're confident about that business.
One of my favourite shares is Challenger Ltd (ASX: CGF), which is why I write about it so often.
Challenger is by far the largest annuity provider in Australia and it's taking around 90% of all new annuity business as well.
It's such a clear leader because of two main reasons. It's wisely built up its recognition and reputation with advisers and clients, they're happy to go with a known brand. It has also ramped up its distribution network. Two of the latest platforms it is sold on belong to AMP Limited (ASX: AMP) and BT Financial Group.
Challenger's main source of funds comes from annuities that it sells to retirees who are looking for a secure source of guaranteed income from their capital. This flow of money into annuities is steadily growing because of Australia's ageing population and large superannuation pool.
In-fact, the number of people over 65 is predicted to grow by 75% over the next two decades, which could be a strong boost to Challenger's funds under management.
I like how conservative Challenger is with its financials. A majority of its underlying funds for the annuities are invested in safe assets like fixed interest. It also has a low dividend payout ratio of only 50%, saving the rest of the profit to re-invest for more growth.
Challenger has recently started working with Mitsui Sumitomo Primary Life Insurance, which is the biggest provider of foreign currency annuities in Japan. Challenger is providing 20-year Australian dollar fixed rate annuities. In FY17 Japanese annuity-related sales delivered 15% of sales for Challenger.
In its quarterly update to 30 September 2017 the business revealed group assets under management (AUM) was up 5%, total life sales had grown by 45% and annuity sales were up 6% compared to the prior corresponding period.
Foolish takeaway
Challenger is currently trading at 21x FY18's estimated earnings with a grossed-up dividend of 3.55%.
It's not a bargain at today's prices, but I think it's still good value for the slow-and-steady growth it should produce over the coming years.
