Challenger: Lifetime Annuities to Fuel Volume and Margin Growth

No-moat Challenger's sales momentum for the first three months of fiscal 2025 was relatively slow, with total life product sales down 14% from the previous corresponding period. However, this included a one-off large institutional policy win in the PCP. Excluding this anomaly, life product sales had increased by 10%. We believe Challenger is still on track for maintainable sales growth and margin expansion. Key positives from the latest business update include ongoing growth in longer-dated, higher-margin retail lifetime annuity sales, and strong Japanese annuity and institutional guaranteed-return product sales. We maintain our fair value estimate at AUD 7.50 per share, with shares screening as undervalued at current levels.