re: Ann: Daily share buy-back notice - Append...
The management structure is a conflicted abomination that virtually guarentees heavy discount to asset value. Gearing is low, have heaps of cash but the name of the game for Challenger to is to keep the perpetual management fees rolling in despite the all and sundry accepting this type of vehicle was a bull market sting.
The ducks were quacking so Challenger raises money to over pay for any old infrastructure with hefty fees guarenteed despite performance or value destruction. The interest rate environment you describe clearly now makes this a much more valuable peice of infrastructure to OSeas investors who can borrow long and low to buy same currency utility returns above cost. Perfect infact for UK pension funds etc. Despite the ubiquitous "strategy review" and broker talk of CIF's demonstrated ability to sell assets at NAB the plan is clearly to talk-up further investment in growing these assets and maintaining the fat fees for ever. Damn shareholder value or naive dreams of closing down the fund, selling the assets and setting free the value trapped.
A UK buyer would readily buy the UK assets and dito EU and US assets at reasobale prices given the assets returns above very low local currency funding costs. If this business was owned by the Australian shareholders I'm sure that is exactly what would happen, because as you say it doesn't really make sense for us, but it is not. It is now being run by the same muppet who overpaid for the assets upon listing and overcourse he is in the business of making money for his boss not the shareholders. Over half the current share price is cash backing, and stripping out the cash the shares are trading on less than 40% of NAB. A joke of a situation that wouldn't be allowed to continue under anything but this conflicted structure.
As you say this is really assets at the wrong time in the wrong structure. Bought a few in the Supa fund that are slightly under water after recent divi but certainly has proved a yield trap of large proportions to most. I assume that eventually the discount becomes so extreme and yield so high that a floor is found. Maybe even shareholders jump up and down enough to bribe management rights off Challenger so they can sell up and put this beast out of it's misery, but I doubt it. My rationale in buying was that CIF represents a self funding hedge against a world recesion and drop in AUD should commodities fall out of bed (ie cheap o'seas assets). That theory is sound so long as the capital value doesn't dissolve away the yield and it seems that the price floor is not yet in.
goodluck
CIF Price at posting:
$1.24 Sentiment: None Disclosure: Not Held
