Overseas Projects And Robust Housing Market Will Strengthen Future Prospects

Key Takeaways

• Strong performance in Residential Development and Overseas units indicates potential revenue boost from rising housing sales and international market investments.
  
• Increased shareholder returns and robust Property Brokerage performance strengthen investor confidence and suggest growth in operating revenue and earnings per share.
  
• Revised property sale plans and declining overseas assets may challenge long-term revenue growth and net margins for Nomura Real Estate Holdings.

Catalysts

Operates as a real estate company in Japan and internationally.

• The Residential Development business unit has seen an increase in both operational revenue and gross profit ratio due to rising housing unit sales and average prices, along with robust customer demand despite rising mortgage rates. This is likely to maintain strong revenue and potentially enhance net margins.
  
• In the Overseas business unit, the unexpected sales bookings in the Vietnam housing market and planned additional investments in Vietnamese and U.S. projects signal potential future revenue growth and earnings improvement from international markets.
  
• The Investment Management business unit benefits from increasing assets under management (AUM) in Japan through private REITs and funds, which could boost revenue and contribute positively to profit margins, despite some declines in overseas AUM.
  
• The Property Brokerage & CRE business has experienced an increase in both transactions and value, driven by strong market conditions in retail, middle, and wholesale segments, suggesting continued growth in operating revenue and business profit.
  
• With ongoing revisions for increased shareholder returns, including a 13th consecutive annual dividend increase, the company's growing commitment to rewarding shareholders may enhance investor confidence and earnings per share through higher future dividends.

Nomura Real Estate Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Nomura Real Estate Holdings's revenue will grow by 4.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 11.1% today to 9.7% in 3 years time.
• Analysts expect earnings to reach ¥87.1 billion (and earnings per share of ¥514.13) by about March 2028, down from ¥87.3 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.9x on those 2028 earnings, up from 8.7x today. This future PE is greater than the current PE for the JP Real Estate industry at 10.5x.
• Analysts expect the number of shares outstanding to decline by 0.47% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.66%, as per the Simply Wall St company report.

Nomura Real Estate Holdings Future Earnings Per Share Growth

Risks

• Sales of rental housing properties in the Residential Development business unit decreased compared to the previous fiscal year. This decrease could impact the business unit's future revenue and gross profit margins.
  
• The plan for property sales in both Residential Development and Commercial Real Estate business units has been revised, leading to a lower gross profit than initially forecasted, potentially impacting net margins.
  
• The tough environment for land acquisition, despite some success, could pose challenges for future development projects and affect long-term revenue growth.
  
• Overseas AUM, particularly in the UK, is declining due to asset sales, which might impact overall asset management revenue and earnings.
  
• The revised downward forecast for the Commercial Real Estate business unit due to changes in property sale plans may negatively affect overall business profit and earnings outcomes.

Valuation

• The analysts have a consensus price target of ¥4504.444 for Nomura Real Estate 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 ¥5400.0, and the most bearish reporting a price target of just ¥3950.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ¥896.5 billion, earnings will come to ¥87.1 billion, and it would be trading on a PE ratio of 10.9x, assuming you use a discount rate of 7.7%.
• Given the current share price of ¥4405.0, the analyst price target of ¥4504.44 is 2.2% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.