Nomura set to raise profit target, chart growth beyond Abenomics

Thu Jul 31, 2014 12:06am EDT

Related Topics

* Nomura to hold bi-annual investors meeting on Friday

* Expected to boost EPS target from 50 yen

* Seen focusing on growing client assets, turning profit overseas

TOKYO, July 31 (Reuters) - Nomura Holdings Inc, Japan's biggest investment banking and brokerage group, will likely announce a higher long-term profit target on Friday after achieving the current goal two years early, analysts said.

Chief Executive Koji Nagai, shortly after he was picked two years ago to overhaul the brokerage stricken by an insider trading scandal, had said the group would aim to report earnings per share (EPS) of 50 yen in the year ending in March 2016. It previously did not have a bottom-line target.

Nomura achieved that objective in the fiscal year ended March 2014, earning 55.81 yen per share. That raised hopes it would set its sights higher, especially as Japan is finally showing signs of emerging from almost two decades of deflation.

Nagai is expected to announce a new target on Friday at Nomura's bi-annual investor gathering as a demonstration of the group's resolve to keep growing even as the first flush of Abenomics fades and its traditional client base shrinks due to an ageing population. Nomura typically updates investors on its long-term strategy at such meetings.

Any new target will likely be modest, however, since last year's jump in profit was boosted by a surge in trading activity as growth strategies unveiled shortly after Prime Minister Shinzo Abe took office in late 2012 encouraged a wave of stock buying, analysts said.

Nomura's April-June results released on Tuesday showed a pullback in earnings, with net profit down year-on-year for the second straight quarter. EPS fell to 5.26 yen from 17.24 yen a year earlier.

"They already achieved 50 yen last year, but the number for the first quarter, annualised, came to just 21 yen," said Deutsche Bank senior analyst Masao Muraki.

He added that he was more interested in seeing details of Nomura's retail strategy, referring to a push under Nagai to grow client assets and recurring revenue.

RETAIL REVOLUTION, GLOBAL RESTRUCTURING

Retail clients account for 60 percent of Nomura's pretax profit. To keep that segment growing in the face of an ageing customer base, Nagai has been encouraging salesmen to shift away from "churning" investment trusts - the practice of trying to earn commission fees by encouraging clients to frequently switch to new products.

Instead, Nomura staff are now being coached to sell more longer-term funds, insurance products and to offer consultation services on retirement and inheritance planning.

It is also hoping to expand its customer base by marketing its service to younger people through the tax-free Nippon Individual Savings Account (NISA) scheme.

Analysts also expect Nomura to explain how it can bolster its overseas operations, which have yet to turn profitable despite $1 billion in cost cuts. Its global business was only profitable in one of the past six years since Nomura acquired the European and Asian operations of Lehman brothers in 2008.

Nomura says it has been winning share in the global fixed-income market as peers pull back to meet new capital requirements. But analysts say it still looks tough for Nomura to meet its earlier target of earning 50 billion yen ($487 million) in annual profit from its global business by March 2016.

"Gaining relative share in fixed income hasn't made its global business profitable. Bringing the actual profit amount up - that's the task facing Nomura," said Barclays analyst Azuma Ohno. ($1 = 102.7600 Japanese Yen) (Reporting by Ritsuko Ando and Emi Emoto; Editing by Ryan Woo)

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