Index falls as earnings results weigh; pound above $1.33, Bodycote soars
On Wednesday, JPMorgan analyst Siddharth Parameswaran upgraded Challenger Ltd. (CGF:AU) (OTC: CFIGY) stock rating from Neutral to Overweight, while reducing the price target to AUD6.30 from AUD6.80. The upgrade followed Challenger’s first-half 2025 report, which revealed a Normalised Profit After Tax (NPAT) of $225.2 million, falling short of JPMorgan’s and consensus estimates. According to InvestingPro data, the company maintains a strong financial health score of 2.69 (rated as GOOD), with particularly robust scores in relative value (3.76) and cash flow (3.0). This shortfall was attributed to a decrease in the Cost of Equity (COE) margin by 9 basis points and a slight contraction in book growth.
Despite these challenges, Challenger demonstrated effective expense management, maintaining a cost-to-income ratio at 32%, which is at the lower end of the company’s guidance range. Parameswaran noted that Challenger has room for further cost control measures. The company’s strong financial management is reflected in its 20-year track record of consistent dividend payments, with a current dividend yield of 4.11% and impressive dividend growth of 17.02% over the last twelve months. However, experience losses have continued to be a significant issue, marking a consistent trend of underperformance in Life normalised Earnings Before Interest and Taxes (EBIT) since 2006.
The Prudential (LON:PRU) Capital Adequacy Ratio (PCA) stood at 1.61 times, which is within the target range of 1.3-1.7 times but was negatively impacted by the experience losses and increased risk profile of the book. For the first time in many years, Challenger surpassed its target normalised after-tax Return on Equity (ROE) of 11.2%, achieving 11.6%, with the Life segment earning 13%.
Challenger’s guidance for the full fiscal year 2025 remains unchanged, with a projected normalised NPAT of between $440 million and $480 million, centering around a midpoint of $460 million. With a P/E ratio of 29.39 and EV/EBITDA of 6.33, InvestingPro analysis suggests the stock may present value opportunities, particularly given its current trading near 52-week lows. Despite the mixed results in the first half, the unchanged guidance and strong control over expenses seem to have contributed to JPMorgan’s decision to upgrade the stock rating.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.