Residential Boom And Overseas Expansion Set To Drive Revenue Growth And Boost Shareholder Returns

Key Takeaways

• The company's residential and overseas business growth, with a significant land bank, secures long-term revenue stability and growth.
  
• Strategic investments in the U.S. and share policies aim to boost future earnings and enhance shareholder returns.
  
• Decreases in commercial property sales, increased construction costs, and overseas challenges could negatively impact margins, earnings, and revenue growth for Nomura Real Estate Holdings.

Catalysts

Operates as a real estate company in Japan and internationally.

• The Residential Development business unit has experienced significant growth in operating revenue due to increased housing units sold and higher average prices. This is expected to positively impact future revenue and business profit.
  
• The company has a substantial land bank worth ¥2 trillion for medium to long-term projects, securing business volume for the next 4 to 5 years. This is likely to ensure revenue stability and growth over the long term.
  
• The overseas business unit, particularly in Vietnam, is progressing well, with successful housing sales and delivery at Ecopark, which should boost future operating revenue and business profit.
  
• The expansion into a new U.S. project in the overseas business unit, with an investment of about ¥20 billion, is expected to drive substantial future revenue growth.
  
• The company plans to acquire treasury shares and has announced a stock split to expand its investor base. These actions are aimed at enhancing shareholder returns and improving earnings per share.

Nomura Real Estate Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Nomura Real Estate Holdings's revenue will grow by 5.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 10.4% today to 9.5% in 3 years time.
• Analysts expect earnings to reach ¥82.4 billion (and earnings per share of ¥484.19) by about December 2027, up from ¥77.7 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ¥74.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.2x on those 2027 earnings, up from 8.2x today. This future PE is lower than the current PE for the JP Real Estate industry at 27.6x.
• Analysts expect the number of shares outstanding to decline by 0.44% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.9%, as per the Simply Wall St company report.

Nomura Real Estate Holdings Future Earnings Per Share Growth

Risks

• The Commercial Real Estate business experienced a decline in both operating revenue and profit due to decreased property sales and leasing revenue, which could negatively impact net margins and earnings.
  
• The increase in construction costs and labor shortages may lead to revisited plans and schedules for large-scale and long-term projects in the Residential Development business, potentially affecting future revenue and earnings growth.
  
• The overseas business unit may face some costs in the third quarter for promoting projects and making new investments, which can put pressure on net margins and earnings.
  
• Overseas AUM is decreasing in the Investment Management business due to selling properties to address cancellations, particularly with the Lothbury, U.K. investment management company, which could impact revenue and overall profits.
  
• The slight increase in vacancy rates for leasing assets in the Commercial Real Estate portfolio may suggest potential challenges in occupancy rates and rental income, potentially affecting revenue stability and profitability.

Valuation

• The analysts have a consensus price target of ¥4441.11 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 ¥5200.0, 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 2027, revenues will be ¥870.9 billion, earnings will come to ¥82.4 billion, and it would be trading on a PE ratio of 11.2x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of ¥3677.0, the analyst's price target of ¥4441.11 is 17.2% 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.