Nomura Blows Away Analyst Estimates (NMR)

| About: Nomura Holdings, (NMR)

Nomura Holdings Inc. (NYSE:NMR) had a blow out quarter and fiscal year. Its quarterly net profit of 128.63 billion yen (US$1.13b) was a 404% increase y-o-y and its highest quarterly mark ever. Five analysts at Reuters had an average forecast of 103.25 billion yen. Five analysts surveyed at Bloomberg were closer but still short at 122 billion yen. Nomura doesn't provide guidance, however it's clear management is happy with its performance. Note that concerns persist over Nomura's dependence on stock commissions.

We are pleased to report that strong performance for the year resulted in record net income, allowing us to offer shareholders the highest-ever annual dividend. We remain focused on building a solid revenue base through expansion of our current operations and by entering new areas to drive Nomura Group to higher levels of growth. (Nobuyuki Koga, President and CEO)

Nomura reported that "for the full-year period, net revenue was 1.15 trillion yen (US$9.8b), an increase of 43% compared to the previous fiscal year. Income before taxes jumped 2.7 times year-on-year to 545 billion yen (US$4.6b), while net income more than tripled to a record 304.3 billion yen (US$2.6b). As a result, ROE for the year stood at 15.5%, a marked improvement from the 5.2% ROE of the previous fiscal year."

Stock commissions continue to drive Nomura's earnings and Reuters reported that some analysts are concerned a cooling stock market and discount on-line brokerages will chip away at its retail market share. Therefore, it's expected Nomura's net profit will fall 16 percent to 256.7 billion yen for the current year. Nomura management is aware of these challenges and appears to be actively taking measures to address expanding and creating growth in new areas.

In the meantime the Nomura Group continues to be a key domestic player in share issues, M&A, and investing. The big picture goal for Nomura is to reach a global level of success like longtime rival Goldman Sachs (NYSE:GS). Nomura does seem to be making progress outside of Japan as its overseas subsidiaries were profitable for the first time in four quarters. Also, Bloomberg noted that Nomura reported its "costs jumped to 91.2 billion yen from 77.4 billion yen, as it hired investment bankers in the U.S., Europe and Asia to support a drive to catch firms such as Goldman, Morgan Stanley and Deutsche Bank AG."

I have to disagree with Yoshihisa Okamoto, senior vice president at Fuji Investment Management, who was quoted in the Reuters article saying that despite the banner numbers investors may be better off focusing on Internet brokerages, which have boasted faster business growth. Instead I see rapid price erosion of commissions hurting profits and based on Okamoto's statement, "The results are good, but so was the business environment," I question what happens to trading volume if stocks go flat or don't end the year with as a big of bang as last year. I like Nomura over its domestic rivals because of its brand and leadership combined with its know-how. Even if we don't have stock prices surging like in late '05 I see plenty of opportunity in M&A as war chests will become a tool of choice in pursuit of growth.

A discussion and reporting of Nomura's financials, including by segment can be accessed by clicking here (PDF format). And a detailed Q4 and full year report can be accessed at this link (PDF format).

Nomura's ordinary shares (Tokyo: 8604) closed down 0.77% at 2,575 yen ahead of its after market earnings announcement.

Nomura also announced it will introduce a quarterly dividend payment beginning this September in accordance with a new Japanese law that will end the to-date limitations of dividend payout frequency to twice a year (interim and year-end). Nomura has a target payout of 8 yen per quarter for an annual dividend of 32 yen.

Shareholders will receive a planned 36 yen per share for the fiscal year just-ended March 31st, making for a 48 yen per share total annual payout. Note that the target payout had been 24 yen, therefore its new target quarterly dividend payout represents an annual increase of 8 yen. The total payout in 2005 and 2004 was 20 yen and 15 yen, respectively. Click here for Nomura's press release (PDF format).

Nomura Holdings, Inc. ADR (NMR) 1-yr chart: