‘Discounted’ Challenger offers investors a solid growth opportunity
In this column published in The Australian, Roger discusses one of Montgomery’s biggest holdings, Challenger, and the outlook in relation to David Murray’s Financial System Inquiry.
Click on the image below to read his piece about investing in the annuity market.
You can read all of the team’s press articles through browsing our media library, view more articles here.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Keith Love
:
Hi Roger
Thanks for your response.
I see the latest report for the Montgomery Fund rates Challenger as A3 versus Skaffold’s C4.
A bit confusing for a layman RM disciple like me !
I wonder if some sort of Skaffold filter would help pick up Challenger as a good company with bright prospects?.
Keith
Roger Montgomery
:
They’re working on it Keith. keep in mind it needs to be ‘automatable’ so that it can be applied across all stocks all around the world!
Joe
:
On the subject of high quality, underpriced stocks in this market – what are your thoughts Roger on CCP (Credit Corp)? Its a stock that’s been covered quite a bit in these blogs.
To me it seems undervalued, and the market seems concerned with short-term issues (bad timing with US expansion, low current supply of PDLs), yet long term growth prospects – especially considering counter-cyclical nature of the business – remain solid. Any thoughts?
Keith Love
:
Am I correct in that CGF is currently rated by Skaffold as C4 and with a MOS of -31% ?
If so this seems to be in conflict with the article which says the stock is currently attractive.
Keith Love
Roger Montgomery
:
Hi Keith, We’ve had this conversation before. Some years ago. Skaffold uses consensus estimates. We do our own forecasting. That covers the valuation. With respect to the quality score you have to treat the debt of financials differently to the debt of, say, a manufacturing business. A bank, for example, ranks depositors funds as debt, but clearly these are not going to inhere in them the same risks as the borrowings of a manufacturer. So CGF quality score would be investment grade if the adjustments are made.
Dean Tipping
:
I could be on the wrong tram but I wouldn’t be surprised if eventually it’s compulsory for a percentage of super fund assets (especially for SMSF’s) are required to be held in annuity products to ensure a member’s retirement is fully funded or at least funded to the point of providing a suitable lifestyle in retirement. With such a big emphasis on self-funding our retirement and the amount of money held in super (and growing) this is a massive growth opportunity.
By and large all most people on the street will want in retirement is a reliable income stream to satisfy their needs and circumstances and financial planners will be all over it like a kid who prefers a packet of smarties to playing sport. The last thing the industry needs is another disaster along the lines of Storm.
Some commentators and analysts have been put off Challenger citing a complicated and difficult to understand balance sheet. How did you find it Roger?
Roger Montgomery
:
How did we find it? Hard work! The clarification of the definition of super from “retirement benefits” to “retirement income” could have an exponential effect.
Peter
:
Hi Roger, Challenger has had a pretty good run over the past month or so. Do you still see it as having a good margin of safety at these levels?
Roger Montgomery
:
I can’t say how ‘good’ the margin of safety is, but our estimate is that there is still a five to ten percent margin of safety. If the next result beats our expectations then that margin of safety would lift again.
Gav
:
I have a 9% allocation to CGF in my family trust, and one of 12 stocks I hold here, so fairly high conviction too.
Roger Montgomery
:
That’s a big weighting Gav. Be careful. YOu might get the business right but the stock can do all sorts of strange things in the short term. Be sure to seek and take personal financial advice.
Richard Prince
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Challenger is rated C4 by Skaffold and is -32% over valued. Are you talking Challenger CGF? Confused Roger.
Roger Montgomery
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Thanks for the question Richard. See previous answers.
Jeff Tairi
:
4% of your portfolio isn’t exactly screaming conviction in your best idea. Would you please explain why CGF doesn’t make up more of your portfolio.
Cheers.
Roger Montgomery
:
Sure, our first objective is to preserve wealth. Our next objective is to grow it. In the three and nearly five odd years since inception of the Montgomery and Montgomery [Private] funds respectively we’ve not only generated significantly higher returns than the broader market (ASX 300) but we’ve also produced a palatable return profile. Capturing about 94% of the upside in any positive month and less than 49% of the downside in a negative month allows investors a restful sleep (thus far of course and not a reliable guide to the future etc). That’s why we have individual stock and sector limits based on quality and liquidity and etc. Hope that helps.