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Summary in a few seconds
I gave it a buy rating Nomura Holdings, Inc. (New York stock market :NMR) (8604:JP) stock. The focal point of my previous Article from April 21, 2024 what were NMR’s financial results for the financial year 2024 (March 31) overview and expansion plans of the company for the Americas market.
This latest article highlights the strong growth potential of Nomura Holdings’ wealth management business and overseas business operations, which continues to warrant a Buy rating for NMR. The company intends to accelerate the growth of its wealth management business through acquisitions. On the other hand, the Americas, India and the Middle East are key international markets that offer good growth prospects.
Growth prospects for the wealth management sector are positive
The wealth management business is NMR’s largest segment and has good growth prospects.
Nomura Holdings achieves 45% of its annual profit 2024 Pre-tax Income of the Wealth Management Segment (formerly known as Retail Segment) as disclosed in its results presentation slidesThe investment management business, wholesale business and other businesses together accounted for the remaining 55% of the company’s pre-tax profits in the previous financial year.
In May 2024 Investor Day Presentation SlidesNMR highlighted the company’s goal of increasing its total pre-tax profit from JPY273.9 billion in fiscal 2024 to JPY500 billion or more in fiscal 2031. This translates to a reasonably decent pre-tax income CAGR of +9%.
The company’s wealth management business segment is expected to play a major role in helping Nomura Holdings achieve its long-term pre-tax profit target. In addition to being the largest profit contributor as highlighted above, NMR’s wealth management segment performed very well in the last financial year. According to the company Presentation of the wealth management activity update According to the information provided, the pre-tax profit of Nomura Holdings’ wealth management segment jumped +266% year-on-year to reach JPY 122.7 billion in fiscal 2024, exceeding the company’s guidance of JPY 95 billion.
Looking ahead, NMR has set a target to increase recurring revenue assets of its wealth management business from 23 trillion yen in fiscal 2024 to 35 trillion yen (source: Wealth Management Business Update Presentation) in fiscal 2031 through organic and inorganic means.
A recent article from the Financial Times dated June 30, 2024 article The Financial Times has published excerpts from an interview with Nomura Holdings CEO Kentaro Okuda. In the latter article, it is highlighted that NMR is looking for “acquisitions to grow its wealth management business” by targeting M&A targets that are “strong in alternative assets” or engaged in “the advisory type of business.” In other words, it is reasonable to assume that NMR will most likely execute inorganic growth transactions to grow its wealth management business in the future.
In terms of organic growth, Nomura Holdings’ wealth management business is expected to benefit from a favorable shift in the capital and asset allocation of Japanese investors over time. In NMR’s wealth management business update presentation, the company mentioned that only 17% of Japanese household assets are invested in “securities” such as “stocks, bonds, and investment trust securities,” which is lower than the 57% ratio of U.S. households. In my previous article, Updated November 16, 2023I noted that “as Japanese people generally become more financially savvy over time, they will save less and invest more of their money.”
To summarize, the outlook for NMR’s largest business segment, wealth management, is favorable with both organic and inorganic growth drivers.
A number of foreign markets show good growth potential
Japan, Nomura Holdings’ home market, accounted for 87% (source: earnings presentation) of the company’s adjusted pre-tax profit for FY2024 (excluding the loss-making European market). Given the high concentration of profits in the Japanese market, it makes sense for NMR to expand into overseas markets for both growth and diversification reasons.
The US market is one of the key international markets that NMR will likely focus on. I previously reported in my April 21, 2024 article that Nomura Holdings recently created a “new Nomura Capital Management LLC brand to consolidate its public and private credit offerings” and set an ambitious target to grow its “US credit portfolio (from $35 billion) to $50 billion in assets under management” over “the next five to ten years.”
Besides the US, there are other geographic markets that offer significant growth opportunities for NMR, such as India and the Middle East.
To his Investor Day Webcast In mid-May this year, Nomura Holdings revealed that it had “over 4,000 employees in India, the second largest base after Japan” and that it had been “ranked second in India IPO rankings” since 2017. NMR also revealed at the company’s 2024 Investor Day that “net assets of India-related funds managed by” its asset management arm have grown by approximately +100% “over the last 5 years.”
Regarding the Middle East, NMR highlighted in its Investor Day 2024 presentation slides that its Global Markets business performed well, achieving a solid CAGR of +30% in client revenues for the period 2021-2024. Going forward, the company’s Middle East operations have the potential to expand into areas such as cryptocurrency and wealth management. Notably, Nomura Holdings established its digital assets business in August last year, and the company has already opened an office in Dubai in late 2022 to target wealth management clients.
In summary, I believe geographic expansion will be a key part of Nomura Holdings’ growth strategy, and markets like the Americas, the Middle East and India hold great promise.
Variant view
There are certain risk factors that should not be ignored when considering RMN as a potential investment.
The first key risk factor is that NMR fails to gain traction in key international markets due to execution issues or geopolitical headwinds.
The second key risk factor is that the company fails to deliver on its inorganic growth strategy by making mistakes such as overpaying for below-average acquisition targets.
Final Thoughts
The growth outlook for Nomura Holdings’ wealth management business and its core overseas markets is favorable, and the upper bound of NMR’s ROE target (source: May 2024 Investor Day) remains unchanged at 10% or more. I believe the stock deserves to trade at book value or better, given its ROE target. As such, Nomura Holdings’ current price-to-book ratio of 0.84x (source: S&P Capital) is attractive enough to warrant a Buy rating.
Editor’s Note: This article discusses one or more securities that are not traded on a major U.S. exchange. Be aware of the risks associated with these securities.
