I am not finding much detail on Goldman's note on Nomura. But from what I've gathered it looks like Goldman based its target hike solely on higher ROE for the fiscal year-ending March 2008.
Nomura's ADRs closed down 1.2% yesterday at $18.98. It has traded between $15.63 - $24.30 over the past year.
Brief coverage by Kabushiki Shimbunsha mentions Daiwa Securities said Nomura's valuation looks cheap at current levels. Nomura's ordinary shares (Tokyo: 8604) gained 1.52% today to close at ¥2,345 ($19.33). It trades at 14.75x trailing earnings, 2.1x book and had a ROE of 15.5% for the year-ending March '06. Based on its ordinary close there's about 10% of upside based on Goldman's target.
I turned bullish on Nomura in early December. I like how it has been aggressive in overseas M&A and investment in an attempt to increase its competitiveness both at home and abroad. Nomura could gain quick advantages over domestic rivals and exploit scale in growing areas such as hedge funds and commodities trading, and in advising in M&A including MBOs/LBOs. Nomura still has much to do to compete with rival American and European i-banks, including the "gold standard" Goldman Sachs.
I still like Nomura at its current level around $19/share. I actually traded out of Nomura in Nov/ Dec but did not re-establish a position. It's possible Nomura could see a short-term jump, for instance on guidance, actual earnings and/or a Nikkei 225 that takes out 18,000.
I would be very cautious of forex. The yen is trading at near 4-year lows against the dollar. I think the BoJ hikes in February, but we won't really know until it happens (obviously), although there's increasing scrutiny of BoJ monetary policy meetings and press leaks. In the meantime I would not be surprised to see the yen hit 125 against the dollar. However, if based on economic data it appears it is "safe" for the BoJ to add on 0.25%, then we could see it strengthen to 115 in anticipation.
I say to be cautious because the conversion rate impacts ADR prices. At this point, I expect there's a greater chance of seeing the yen at 125 than 115, especially over the next couple weeks. That said, I'm holding off on most ADR longer-term buying at this point.
Nomura Holdings (NMR) 1-year chart:
Disclosure: The author does not own shares of any companies mentioned in this article.