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Does Challenger’s recent announcement imply good news?

18072019_CGF

Does Challenger’s recent announcement imply good news?

At an investor day in Sydney last month, newly-appointed CEO of Challenger (ASX: CGF), Richard Howes, announced something that any new CEO would rather not. Howes announced that he was abandoning the 18 per cent pre-tax Group normalised return-on-equity (ROE) target that had been held by the company for the last 15 years. The market did not take kindly to this news, wiping off 16 per cent of Challenger’s market capitalisation over the subsequent 24 hours.

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Andrew Macken is the Chief Investment Officer of the Montaka funds and the Montgomery Global funds. He established MGIM in 2015 in partnership with Montgomery.

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.

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4 Comments

  1. Fascinating discussion points on Challenger, but they apply to the broader market as well. My question would be around market inefficiency. What you argue above is logical and rational, but we all know that is not how markets behave. If they did there would be much less excess return for investors to harvest. For Challenger, the reality of their strategic shift on ROE may be a case of short term pain for long term gain, but the expectation of much lower RBA rates for some considerable time may justify the knee jerk reaction. The market may need some proof of lower cost of equity being realised to bump the risk premium upwards from here.

    • Hi Terry,
      The Montgomery Global funds and the Montaka funds are managed by a different, independent team, led by Chris Demasi and myself. We continue to own Challenger because we believe it is undervalued.
      All the best,
      -AM

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