Diversification And Digital Asset Expansion Will Open New Opportunities, But Economic Risks Could Impact Future Earnings

Key Takeaways

• Portfolio diversification and growth in digital assets and wealth management could boost revenue, net margins, and income stability.
  
• Improved operating leverage through cost control and asset management performance may increase earnings growth and net income margins.
  
• Economic and market volatility, interest rate risks, and competitive pressures may hinder Nomura's profit margins, revenue growth, and long-term financial stability.

Catalysts

Provides various financial services to individuals, corporations, financial institutions, governments, and governmental agencies worldwide.

• Continued focus on portfolio diversification and revenue growth in Global Markets across various regions is likely to increase Nomura's revenue streams. This expansion could positively impact net revenue by tapping into a broader client base and product diversity.
  
• The growth of contributions from Laser Digital, Nomura's digital asset subsidiary, indicates growing revenues from the digital asset sector, potentially increasing net income and earnings as these high-growth areas develop further.
  
• Expansion and improvements in Wealth Management with a focus on investment trusts and foreign stocks, combined with stable recurring revenue growth, suggest improved revenue stability and potentially increased net margins from diversified and consistent income sources.
  
• Strengthening performance in investment management and increased assets under management reach a record high, predicting increased business revenue and more stable earnings from management fees and related revenue streams.
  
• The significant improvement in operating leverage through cost control measures and revenue growth demonstrates an ability to expand net income margins by increasing revenue faster than expenses, positively affecting earnings growth.

Nomura Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Nomura Holdings's revenue will decrease by 2.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 17.3% today to 16.1% in 3 years time.
• Analysts expect earnings to reach ¥279.1 billion (and earnings per share of ¥101.9) by about March 2028, down from ¥325.5 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as ¥316.4 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.1x on those 2028 earnings, up from 8.8x today. This future PE is greater than the current PE for the US Capital Markets industry at 11.8x.
• Analysts expect the number of shares outstanding to decline by 0.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.35%, as per the Simply Wall St company report.

Nomura Holdings Future Earnings Per Share Growth

Risks

• Economic and market conditions could introduce volatility and risks, impacting revenue and net margins due to the uncertain nature of international markets and political events.
  
• The volatility of interest rates and currency exchange rates presents a risk that may affect earnings by impacting the cost of financing and the value of international operations.
  
• Competitive conditions and the timing of transactions could create pressure on profit margins if Nomura fails to maintain a competitive edge, affecting revenue growth.
  
• Potential setbacks in the securitization business due to liquidity regulations could negatively impact profitability, affecting the earnings of the fixed income division.
  
• The sale of substantial assets like real estate to improve asset efficiency might result in one-off gains rather than sustainable revenue streams, impacting the stability of future earnings.

Valuation

• The analysts have a consensus price target of ¥1077.5 for Nomura Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ¥1300.0, and the most bearish reporting a price target of just ¥800.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ¥1728.7 billion, earnings will come to ¥279.1 billion, and it would be trading on a PE ratio of 14.1x, assuming you use a discount rate of 7.3%.
• Given the current share price of ¥967.0, the analyst price target of ¥1077.5 is 10.3% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.