Residential And Overseas Expansion Will Create Promising Opportunities

Key Takeaways

• Strategic investments in domestic and overseas real estate are set to drive revenue and profit growth through diversification and expansion.
  
• Shareholder focus, with consistent dividend increases and capital allocation, may enhance investor confidence and boost stock valuation.
  
• Reliance on high-end housing and strategic investments poses risks to growth and profitability amid changing market conditions and potential market downturns.

Catalysts

Operates as a real estate company in Japan and internationally.

• The company plans to increase property sales in both the Residential Development BU and Commercial Real Estate BU, which is expected to drive a record high in operating revenue and profit for FY 2025. This would positively impact revenue and earnings.
  
• Nomura Real Estate has secured land for approximately 2,000 high-end housing units, equivalent to about ¥450 billion in sales, targeting delivery by fiscal year ending March 2028. This land acquisition strategy is likely to support revenue growth over the next few years.
  
• The Overseas Business BU is expected to contribute positively to earnings, with new project investments in rental housing projects in Seattle and London, alongside ongoing projects in Vietnam. This diversification and expansion may provide additional revenue streams and profit increases.
  
• A strategic plan to invest ¥2.052 trillion over the next three years, focusing on growth areas such as rental housing, hotels, and logistics facilities, aims to support sustained profit growth with a targeted business profit average annual growth rate of around 8%.
  
• Continued dividend growth, increased dividend payout for 14 consecutive years, and a shareholder-focused capital allocation policy with a total return ratio target of 40% to 50% may boost investor confidence and thus influence stock valuation and earnings per share (EPS).

Nomura Real Estate Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Nomura Real Estate Holdings's revenue will grow by 8.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 9.9% today to 9.2% in 3 years time.
• Analysts expect earnings to reach ¥90.0 billion (and earnings per share of ¥106.09) by about May 2028, up from ¥74.8 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 10.9x on those 2028 earnings, up from 9.7x 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 0.5% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.01%, as per the Simply Wall St company report.

Nomura Real Estate Holdings Future Earnings Per Share Growth

Risks

• The decrease in operating revenue and profit in the Commercial Real Estate Business Unit due to reduced property sales from original plans may impact overall revenue growth and profitability if it continues.
  
• Increasing reliance on high average house prices and high-end housing properties for growth could be risky if there is a downturn in the housing market, potentially affecting revenue and net margins.
  
• The predicted one-off costs or losses related to the demolition and construction of new projects, like the Blue Front Shibaura Tower, could temporarily impact net earnings in FY 2025.
  
• Changes in customer needs, societal values, and macroeconomic conditions introduce uncertainty, which could impact the group's ability to maintain current performance and affect revenue stability.
  
• Significant investment plans in new business areas such as strategic investments and new hotel types could divert resources and pose risks if these new ventures do not yield anticipated returns, impacting future earnings and return on investment.

Valuation

• The analysts have a consensus price target of ¥950.444 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 ¥1080.0, 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 ¥976.4 billion, earnings will come to ¥90.0 billion, and it would be trading on a PE ratio of 10.9x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of ¥846.9, the analyst price target of ¥950.44 is 10.9% higher.
  
• 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.