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Elevator pitch
Purchase rating has been given Nomura Holdings, Inc. (NYSE:NMR) [8604:JP] Our previous article, dated April 21, 2024, focused on NMR’s financial results for fiscal year 2024 (ending March 31). Here’s a preview and the company’s expansion plans into the Americas market.
This latest article highlights the strong growth potential of Nomura Holdings’ wealth management and international businesses, which continues to justify our buy rating on NMR. The company intends to accelerate the growth of its wealth management business by pursuing acquisitions. Meanwhile, the Americas, India and the Middle East are key international markets with favorable growth prospects.
Wealth management business has bright growth prospects
The asset management business is NMR’s largest division and has good growth prospects.
Nomura Holdings Inc. generated 45% of its operating profit in fiscal 2019 from Pre-tax profit for the Wealth Management division (formerly the Retail division) in 2024 is: Revenue Presentation SlidesThe investment management, wholesale and other businesses together contributed the remaining 55% of the Company’s pre-tax profit in the last fiscal year.
In a slide from its May 2024 investor briefing, NMR outlined the company’s goal of increasing total pre-tax profits from 273.9 billion yen in FY2024 to over 500 billion yen in FY2031. This implies a pretty good pre-tax profit CAGR of +9%.
Nomura Holdings’ Wealth Management division is expected to play a major role in helping the company achieve its long-term pre-tax profit targets. In addition to being the largest contributor to profits as mentioned above, NMR’s Wealth Management division has performed very well in the most recent fiscal year. According to the company’s Wealth Management update, Nomura Holdings’ Wealth Management division’s pre-tax profits are expected to increase 266% year-on-year to 122.7 billion yen in fiscal 2024, beating the company’s guidance of 95 billion yen.
Going forward, NMR has set a goal of increasing the operating income assets of its wealth management business from JPY 23 trillion in FY2024 to JPY 35 trillion in FY2031 (Source: Wealth Management Business Update Presentation) through both organic and inorganic means.
An article in the Financial Times dated June 30, 2024 features an interview with Nomura Holdings President Kentaro Okuda. This latest Financial Times article highlights that NMR is looking for “acquisitions to expand its wealth management business,” with M&A targets in mind who are “strong in alternative assets” or engaged in “advisory-type businesses.” In other words, it is reasonable to assume that NMR will probably execute inorganic growth transactions to expand its wealth management business in the future.
In terms of organic growth, Nomura Holdings’ wealth management business is likely to benefit from favorable changes in Japanese investors’ capital and asset allocation over time. In an NMR wealth management business update presentation, the company noted that just 17% of Japanese household assets are invested in “securities” such as “stocks, bonds and mutual fund certificates,” lower than the 57% rate for U.S. households. In a previous November 16, 2023 update, it said, “As Japanese people generally become more financially savvy over time, they will likely save less and invest more.”
In summary, the outlook for NMR’s largest business segment, asset management, is good, driven by both organic and inorganic growth drivers.
Many overseas markets have great growth potential
Nomura Holdings’ home market, Japan, will account for 87% of the company’s adjusted pre-tax profit (excluding loss-making European market) in fiscal 2024 (Source: Earnings presentation slide). Given the high concentration of revenue in the Japanese market, it makes a lot of sense for NMR to expand into overseas markets, both from the perspective of growth and diversification.
The US market is one of the key international markets NMR is likely to focus on. I previously noted in an April 21, 2024 article that Nomura Holdings recently “established a new brand, Nomura Capital Management LLC, to consolidate its public and private credit offerings” and set an ambitious growth target for its “US credit portfolio in assets under management (from $35 billion to $50 billion)” over “the next five to 10 years.”
Besides the US, there are other geographic markets that offer significant growth opportunities for NMR, such as India and the Middle East.
Nomura Holdings revealed in an investor briefing webcast in mid-May this year that it has “more than 4,000 employees in India, making it the second-largest base after Japan,” and that it has been ranked “second in Indian IPO rankings” since 2017. Nomura Holdings also revealed in its 2024 investor briefing that “the net assets of India-related funds managed by its asset management division have grown by approximately 100% over the past five years.”
Regarding the Middle East, NMR highlighted in its 2024 investor presentation slides that its Global Markets business performed well, with client revenue CAGR up 30% from FY2021 to FY2024. Going forward, the company’s Middle East business has the potential to grow in areas such as cryptocurrency and asset management. Notably, Nomura Holdings launched its digital assets business in August last year, and the company opened an office in Dubai at the end of 2022 targeting asset management clients.
In summary, I believe geographic expansion will be a key element of Nomura Holdings’ growth strategy, with markets such as the Americas, the Middle East and India offering great potential.
Variant View
If you are considering NMR as a potential investment, you should not ignore certain risk factors.
The first major risk factor is NMR’s inability to gain traction in key international markets due to execution issues and geopolitical headwinds.
The second major risk factor is making mistakes such as overpaying for substandard acquisition targets and having an inorganic growth strategy go awry.
Final thoughts
The growth prospects for Nomura Holdings’ wealth management business and key overseas markets are favorable, and the upper end of NMR’s ROE target (Source: Investor Day May 2024) remains unchanged at 10% or higher. In my opinion, given the company’s ROE target, the stock deserves to trade above book value. Therefore, Nomura Holdings’ current trailing 12-month P/B ratio of 0.84x (Source: S&P Capital) is attractive enough to support a buy rating.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
