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Elevator Pitch
Nomura Holdings, Inc. (NYSE:NMR) [8604:JP] shares are rated as a Buy,
My earlier write-up published on February 1, 2024 analyzed Nomura Holdings’ Q3 FY 2024 (YE March 31, 2024) financial performance. I preview NMR’s Q4 FY 2024 financial results and assess the growth outlook for the company’s Americas geographical market with the current update.
I remain bullish on NMR, as my Buy rating for the stock stays unchanged. In the near term, I expect Nomura Holdings’ upcoming quarterly results to be a positive surprise. For the mid-to-long term, the company’s Americas market is expected to be a major growth driver.
The Americas Geographical Region Is A Key Growth Driver
Nomura Holdings derived a significant 22% of its top line from the Americas geographical region for full-year fiscal 2023 (April 1, 2022 to March 31, 2023). As such, it is reasonable to view the Americas as a critical market for NMR.
Moving forward, I expect the company to place a strong emphasis on growing its business operations in the Americas region judging by recent news flow and management commentary.
Firstly, Seeking Alpha News recently reported on April 4, 2024 that NMR has set a target to “boost its U.S. credit portfolio (from $35B) to $50B in assets under management (AUM) over the next five to 10 years.” In this early-April Seeking Alpha News article, it is also highlighted that the US “private credit” is a “fast-growing market.” Looking ahead, the company’s earnings contribution from the Americas market should rise in tandem with the AUM expansion for its US credit business over time.
Secondly, Nomura Holdings issued a press release last month revealing that it has established a “new brand Nomura Capital Management LLC (NCM)” to consolidate its “public and private credit offerings.” In this March 11, 2024 media release, NMR stressed that the creation of the new brand NCM aims to expand the company’s “asset and investment management footprint in the Americas” and “increase the impact of its (Americas’) investment management business to the overall results of Nomura.” The new branding sends a clear signal that NMR is taking its growth ambitions in the Americas’ asset management market seriously.
Thirdly, NMR made special mention of its Americas market when the company touched on its performance for Q3 FY 2024 (October 1, 2023 to December 31, 2023) and the first month of calendar year 2024. The company specifically noted in its Q3 FY 2024 earnings presentation that its Americas market’s “Equity Products had a strong quarter” in the third quarter of fiscal 2024. Nomura Holdings also indicated in its most recent quarterly results presentation that its January 2024 “Wholesales revenues” were boosted by a “solid performance in (the) Rates (business) in the Americas.” The good performance of Nomura Holdings’ Americas business operations in Q3 FY 2024 and January 2024 could possibly suggest that the initial results of its growth plans for this market have been encouraging.
To sum things up, my opinion is that the Americas geographical market will be a significant growth engine for Nomura Holdings in the intermediate-to-long term.
My Prediction Is A FY 2024 Results Beat
On the company’s investor relations website, NMR indicated that the company’s Q4 FY 2024 and full-year FY 2024 financial results ended March 31, 2024 will be disclosed on April 26.
There are no quarterly consensus estimates available for Nomura Holdings. On an annual basis, the analysts anticipate that NMR’s revenue and pre-tax income will increase by +14% and +81% to JPY1,524 billion and JPY271 billion, respectively as per S&P Capital IQ consensus data. As a comparison, the company’s top line and income before tax were up by +11% and +43%, respectively on a YoY basis in 9M FY 2024.
In other words, NMR performed well in the first nine months of fiscal 2024, and the sell side sees the company delivering an even better set of results for the final quarter of the most recent fiscal year.
I take the view that Nomura Holdings’ actual Q4 and full-year fiscal 2024 results can beat the market’s expectations taking into account three factors.
One factor is that NMR’s Americas operations are likely to have delivered robust growth in the fourth quarter of FY 2024 (or first quarter of calendar year 2024). Nomura Holdings highlighted in its Q3 FY 2024 earnings presentation in January this year that its “Wholesale revenues” for the first month of Q4 FY 2024 “are outpacing the third quarter” thanks to the good results of the company’s “Rates (business) in the Americas.”
Another factor is that the company’s investment banking business should have benefited from an increase in deal flow for the Japanese market. An earlier February 22, 2024 Seeking Alpha News article drew attention to Japan’s recent “corporate governance changes” such as the trend of reduction in “strategic crossholdings between conglomerates.” At the Q&A session for its Q3 FY 2024 analyst briefing in January this year, NMR emphasized that it has a “robust deal pipeline” driven by “continued strong demand for unwinding of strategic shareholdings” in Japan.
The final factor is that Nomura Holdings’ actual Q4 FY 2024 operating expenses might be lower than expected. The company indicated at its Q3 FY 2024 analyst meeting’s Q&A session that “we constantly review our headcount” and shared that it has “taken steps for structural reform from the fourth quarter (of fiscal 2024) onwards.” As a reference, NMR’s cost-to-income ratio decreased by -12 percentage points YoY and -7 percentage points QoQ to 89% in Q3 FY 2024. It is realistic to assume a further decline in Nomura Holdings’ cost-to-income metric for Q4 FY 2024 considering recent trends and management comments.
In a nutshell, a positive surprise associated with NMR’s fourth quarter results announcement towards the end of this month is highly probable in my opinion.
Risk Factors To Consider
There are two key downside risks relating to Nomura Holdings that investors should be aware of.
A downside risk is a potential Q4 FY 2024 results miss. A lower-than-expected number of investment banking deals and higher-than-expected operating costs could be factors responsible for a negative surprise pertaining to its fourth quarter financial performance.
The other downside risk is slower-than-expected growth for NMR’s operations in the Americas market. The company’s plans to expand its business in Americas might not work out as well as what it hoped for.
Concluding Thoughts
The market currently values Nomura Holdings at 0.83 times (source: S&P Capital IQ) trailing P/B, which is still pretty appealing as compared to the upper end of the company’s FY 2025 ROE goal at 10% mentioned in my February 1 article. A Q4 FY 2024 results beat and the strong growth of its Americas business operations might serve as positive share price drivers for NMR, and this supports a Buy rating for the stock.
