Macquarie Acquisition And Banking Unit Will Broaden Markets Amid Risks

Key Takeaways

• Acquisitions and strategic initiatives may boost revenue growth and expand Nomura's global presence in asset and wealth management sectors.
  
• Share buyback program and capital management strategies aim to enhance shareholder value and support long-term growth.
  
• Exposure to market conditions, regulatory changes, and international expansion risks could impact Nomura Holdings' revenue stability, profitability, and shareholder returns.

Catalysts

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

• The acquisition of Macquarie Group’s U.S. and European public asset management business is expected to increase the size and global reach of Nomura's Investment Management division, potentially impacting future revenue and earnings by expanding its client base and investment capabilities.
  
• The newly established banking division aims to leverage the strengths of Nomura's banking and trust banking functions, which could drive future revenue growth by offering more diverse and high-quality services to clients.
  
• Recurring revenue in Wealth Management and business revenue in Investment Management have risen to record levels due to strategic initiatives, indicating potential for stable future revenue growth.
  
• The share buyback program, with an upper limit of 100 million shares and ¥60 billion repurchase value, is expected to enhance earnings per share by reducing the number of outstanding shares, returning capital to shareholders, and potentially increasing shareholder value.
  
• Efforts to maintain a healthy financial position with a Tier 1 capital ratio of 16.2% and a common equity Tier 1 ratio of 14.5% under Basel III regulations aim to strategically utilize surplus capital for growth investments, which could positively impact future earnings and shareholder returns.

Nomura Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Nomura Holdings's revenue will decrease by 3.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 18.0% today to 16.1% in 3 years time.
• Analysts expect earnings to reach ¥275.2 billion (and earnings per share of ¥102.4) by about May 2028, down from ¥340.7 billion today. The analysts are largely in agreement about this estimate.
• 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 6.9x today. This future PE is greater than the current PE for the US Capital Markets industry at 12.5x.
• Analysts expect the number of shares outstanding to decline by 0.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.39%, as per the Simply Wall St company report.

Nomura Holdings Future Earnings Per Share Growth

Risks

• The company faces exposure to fluctuations in market conditions and interest rates, which could impact their revenues and earnings as mentioned in the risks associated with economic and market conditions.
  
• A significant decline in Fixed Income revenues in their Wholesale division due to unfavorable market conditions and spread widening could negatively affect future income and net margins.
  
• There is execution risk related to their international expansion efforts, particularly in regions with high market volatility, impacting their revenue stability and profit margins.
  
• The company's profitability may be affected by the competition in strong performing segments like Equities, which, while currently providing revenue growth, could face future pressures leading to earnings variability.
  
• Changes in regulatory requirements, such as the Basel III finalization affecting capital requirements and CET1 ratios, could constrain the company’s ability to grow or affect their capital management strategies, leading to potential impacts on net margins and shareholder returns.

Valuation

• The analysts have a consensus price target of ¥1063.75 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 ¥900.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ¥1714.1 billion, earnings will come to ¥275.2 billion, and it would be trading on a PE ratio of 14.1x, assuming you use a discount rate of 7.4%.
  
• Given the current share price of ¥791.2, the analyst price target of ¥1063.75 is 25.6% 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.