Challenger Limited (ASX: CGF) Lifts Buyback to $450m After FY26 Profit Surge

Challenger Limited reported a 163% jump in statutory net profit and expanded its buyback, while setting higher core earnings guidance for FY27.

Statutory net profit after tax reached $506 million for the year ended June 30, 2026. Positive asset and liability experience supported that increase.

Normalised profit rose 3% to $468 million. Normalised earnings per share also gained 3% to 68.1 cents.

Earnings and Returns

Normalised return on equity was 11.6%, exceeding Challenger’s 10.9% target by 70 basis points. The target incorporates the Reserve Bank cash rate, a margin and tax.

Income increased 2% to $965 million, while expenses rose 1% to $319 million. Consequently, the cost-to-income ratio improved by 20 basis points to 32.1%.

That result placed the ratio near the bottom of Challenger’s 32% to 34% target range. Higher technology and investment operations costs were partly offset by lower personnel costs.

The full-year ordinary dividend increased 7% to 31.5 cents per share. Challenger also declared a 1.5-cent special dividend.

Annuity Sales Drive Book Growth

Life sales climbed 12% to $9.6 billion. Sales of annuities with terms exceeding three years, including lifetime products and offshore reinsurance, rose 14.4%.

The annuity book expanded 10.7%. Meanwhile, third-party asset management recorded $400 million of net flows.

Third-party assets increased 11% to $4.1 billion. Total Life investment assets rose 4% to $26.6 billion.

These figures matter because annuity book growth expands Challenger’s core insurance balance sheet. Longer-duration sales also support its focus on retirement income and institutional solutions.

Capital Returns Expand

Challenger has commenced a $150 million buyback and announced another $300 million program. The additional buyback remains subject to market conditions and regulatory approval.

The company is also redeeming $385 million of Challenger Capital Notes 3. Its pro-forma Challenger Life Company prescribed capital amount ratio was 1.50 times under the new capital standards.

That pro-forma ratio was unaudited. Challenger’s stress illustration showed the ratio declining by 0.05 times under the new standards, compared with 0.25 times previously.

The new framework is designed to reduce capital volatility through market cycles. It also supports Challenger’s planned shift towards a less capital-intensive asset mix.

FY27 Guidance and Merger Timing

Challenger forecast FY27 core basic earnings per share of 45 cents to 49 cents. The midpoint is 6% above FY26 core earnings per share of 44.2 cents.

Core earnings exclude normalised accruals for income and capital growth. This distinction changes comparisons with Challenger’s previous normalised earnings measure.

The Fidante and Channel Capital merger is expected to complete late in the first half of FY27, subject to approvals. Challenger will retain a 45% stake in the merged entity.

Over three to five years, Challenger targets annual operating earnings-per-share growth of 8% to 10%. It also targets after-tax operating return on equity of 12% to 14%.