Nomura: Wealth Management Business And Overseas Markets Are Key Growth Engines (NMR)

Elevator Pitch

I have a Buy rating assigned to Nomura Holdings, Inc. (NYSE:NMR) [8604:JP] stock. The focus of my prior April 21, 2024 article was NMR’s fiscal 2024 (YE March 31) financial results preview and the company’s expansion plans for the Americas market.

This latest write-up highlights the strong growth potential for Nomura Holdings’ wealth management business and overseas business operations, which continues to warrant a Buy rating for NMR. The company has the intention to accelerate the growth of its wealth management business by engaging in acquisitions. On the other hand, the Americas, India, and the Middle East are key international markets which boast good growth prospects.

Wealth Management Business’ Growth Outlook Is Positive

The wealth management business is NMR’s largest segment and has good growth prospects.

Nomura Holdings derived 45% of its FY 2024 pre-tax income from the wealth management segment (formerly known as the Retail segment) as disclosed in its earnings presentation slides. The investment management business, the wholesale business, and other businesses as a whole accounted for the remaining 55% of the company’s earnings before tax in the prior fiscal year.

In its May 2024 Investor Day presentation slides, NMR outlined the company’s goal of increasing its total pre-tax earnings from JPY273.9 billion for FY 2024 to JPY500 billion or better in FY 2031. This translates into a reasonably decent income before tax CAGR of +9%.

The company’s wealth management business segment is expected to play a major role in helping Nomura Holdings meet its long-term pre-tax income target. Apart from being the most significant earnings contributor as highlighted above, NMR’s wealth segment has performed very well in the most recent fiscal year. As per the company’s wealth management business update presentation disclosures, pre-tax earnings for Nomura Holdings’ wealth management segment jumped by +266% YoY to JPY122.7 billion in FY 2024, which surpassed the company’s JPY95 billion guidance.

Looking forward, NMR has set a target to increase its wealth management business’ recurring revenue assets from JPY23 trillion in FY 2024 to JPY35 trillion (source: wealth management business update presentation) for FY 2031 via both organic and inorganic means.

A recent June 30, 2024, Financial Times article published takeaways from an interview with Nomura Holdings’ CEO, Kentaro Okuda. In this latest Financial Times piece, it is highlighted that NMR is seeking “acquisitions to expand the wealth management business” with an eye on 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 probably execute on inorganic growth transactions to expand its wealth management business in the future.

Regarding organic growth, Nomura Holdings’ wealth management business will likely benefit from a favorable change in the allocation of Japanese investors’ capital and assets over time. In NMR’s wealth management business update presentation, the company mentioned that a mere 17% of Japanese households’ assets are invested in “securities” like “equities, debentures and investment trust deeds,” which is lower than the 57% ratio for US households. In my earlier November 16, 2023, update, I noted that “as Japanese individuals in general become more financially savvy over time, they will save less and invest more of their monies.”

To sum things up, the outlook for NMR’s largest business segment, wealth management, is favorable with both organic and inorganic growth drivers.

A Number Of Overseas Markets Have Good Growth Potential

Japan, Nomura Holdings’ home market, accounted for a substantial 87% (source: earnings presentation slides) of the company’s FY 2024 adjusted income before tax (excluding the loss-making European market). Considering the significant earnings concentration in the Japanese market, it makes a lot of sense for NMR to expand in overseas markets for both growth and diversification.

The Americas market is one of the key international markets that NMR will likely be focusing on. I have previously indicated in my April 21, 2024, article that Nomura Holdings recently created a “new brand Nomura Capital Management LLC to consolidate its public and private credit offerings” and set an ambitious “US credit portfolio (from $35B) to $50B in assets under management” growth target for “the next five to 10 years.”

Apart from the US, there are other geographical markets which throw up meaningful growth opportunities for NMR, such as India and the Middle East.

At its Investor Day webcast in mid-May this year, Nomura Holdings revealed that it has “more than 4,000 employees in India, the second-largest base after Japan” and has ranked “second in the IPO league table in India” starting in 2017. NMR also disclosed at the company’s 2024 Investor Day that “the net assets of the India-related funds managed by” its asset management arm grew by around +100% “over the past 5 years.”

Regarding the Middle East, NMR highlighted in its 2024 Investor Day presentation slides that its Global Markets business has done well by achieving a strong +30% client revenue CAGR for the FY 2021-2024 time frame. Moving ahead, the company’s Middle East operations have the potential to grow in areas such as cryptocurrency and wealth management. Notably, Nomura Holdings set up its digital assets business in August last year, and the company previously set up an office in Dubai at the end of 2022 to target wealth management clients.

In summary, I think that geographical expansion will be a key component of Nomura Holdings’ growth strategy, and markets like the Americas, the Middle East, and India show great promise.

Variant View

Certain risk factors shouldn’t be ignored if one is considering NMR 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 doesn’t do well with its inorganic growth strategy by making mistakes like overpaying for sub-par acquisition targets.

Final Thoughts

The growth outlook for Nomura Holdings’ wealth management business and key overseas market is favorable, and the upper end of NMR’s ROE goal (source: May 2024 Investor Day) stays unchanged at 10% or above. My opinion is that the stock deserves to trade at book value or better, considering its ROE target. As such, Nomura Holdings’ current trailing P/B ratio of 0.84 times (source: S&P Capital) is sufficiently appealing 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.