On Tuesday, BofA Securities reinstated coverage on Nomura Holdings (NYSE:NMR), issuing a Neutral rating and setting a price target of $5.79. The firm highlighted a fair price-to-book (P/B) ratio of 0.78x for Nomura, based on a smoothed return on equity (ROE) of 7%, a cost of capital of 9%, and no expected growth. However, due to the short-term uncertainty surrounding potential regulatory penalties, BofA Securities has applied a 10% discount to the P/B ratio, resulting in a reduced target.
The analyst from BofA Securities noted that while Nomura's profit growth has been stable since mid-FY3/24, the company's earnings have historically shown significant volatility. The analyst pointed out that the wholesale business, which is about twice the size of the wealth management (WM) business in terms of top-line revenues, contributes to this volatility, especially due to the fluctuations in global markets within the wholesale segment.
Despite the growth in asset-based profits from wealth management and investment management, as well as investment bank fees, these factors are not expected to significantly influence the near-term volatility faced by global markets. This assessment suggests that while there are positive aspects to Nomura's business, the potential impact of regulatory penalties is a noteworthy concern that tempers the outlook.
Nomura's wealth management and investment management businesses have been identified as areas of steady growth. However, the firm's analysis indicates that this growth is overshadowed by the near-term volatility of global markets, which is largely driven by the wholesale side of the business.
BofA Securities' price objective of $5.79 for Nomura Holdings reflects a cautious stance, acknowledging both the company's stable profit growth in certain areas and the challenges it faces with market volatility and regulatory uncertainties. The Neutral rating suggests a wait-and-see approach to the stock, as the market assesses the potential outcomes of Nomura's regulatory issues.
In other recent news, Nomura Holdings faces potential penalties from the Securities and Exchange Surveillance Commission (SESC) of Japan for alleged market manipulation activities. Meanwhile, JPMorgan has resumed coverage on Nomura, assigning a Neutral rating, acknowledging the company's potential to outperform depending on the business environment. However, JPMorgan also noted that Nomura appears to lag behind Daiwa Securities Group in terms of profit stability and capital allocation efficiency.
In earnings news, Nomura reported a steady increase in net revenue and net income for the first quarter of the fiscal year ending March 2025. The company's net revenue rose by 2% to ¥454.4 billion, pre-tax income by 12% to ¥102.9 billion, and net income by 21% to ¥68.9 billion. The Wealth Management and Asset Management segments saw growth, while the Wholesale segment experienced a decrease in net revenue.
In terms of market expectations, major brokerages, including J.P. Morgan, Citigroup, Wells Fargo, Goldman Sachs, Nomura, Deutsche Bank, Morgan Stanley, and Barclays, anticipate that the Federal Reserve will lower interest rates in the coming months. The consensus points towards a 25 basis points reduction, following recent economic indicators such as a rise in the U.S. unemployment rate and an uptick in July's retail sales.
InvestingPro Insights
Recent InvestingPro data provides additional context to BofA Securities' analysis of Nomura Holdings (NYSE:NMR). The company's P/B ratio of 0.67 as of the last twelve months ending Q1 2025 aligns closely with BofA's fair P/B estimate of 0.78x, supporting their valuation approach. Nomura's current P/E ratio of 11.09 and forward P/E of 10.91 suggest the stock is trading at relatively modest valuations, which could be attractive to value investors despite the short-term uncertainties highlighted in the report.
InvestingPro Tips reveal that Nomura has maintained dividend payments for 33 consecutive years, demonstrating a commitment to shareholder returns even in volatile market conditions. This track record may provide some stability for investors concerned about the company's earnings volatility. Additionally, Nomura's liquid assets exceeding short-term obligations indicate a strong financial position, which could help the company navigate potential regulatory penalties mentioned in the BofA report.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for Nomura Holdings, providing deeper insights into the company's financial health and market position.
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