Should You Exit This Mid-Cap Financials Stock – NMR

Apr 12, 2022 12:00 AM PDT | Team Kalkine
Should You Exit This Mid-Cap Financials Stock – NMR


Nomura Holdings Inc.

Nomura Holdings Inc. (NYSE: NMR) is a global financial services corporation operating in over 30 countries. Through its three business segments, Retail, Wholesale (Global Markets and Investment Banking), and Asset Management, NMR addresses the needs of individuals, institutions, businesses, and governments by connecting markets East and West.

Why Should Investors Make An Exit?

  • Weak Margin Profile: In Q3FY22, NMR’s reported operating margin was 19.8% vs. the industry median of 32.6% and reported net margin of 15.3% in the period under consideration which was lower than the 24.8% reported in the same period of the corresponding previous financial year.
  • Leveraged Balance Sheet: The company is more exposed to balance sheet risk than its peers, with a Debt/Equity ratio of 9.85x as of December 31, 2021, compared to the industry norm of 0.44x. Furthermore, its long-term debt-to-total-capital ratio was 29.2%, compared to the industry average of 13.5% for the same period. These leveraged financials put the corporation at risk of huge swings due to the slightest adjustment in interest rates.
  • Competition Risk: The company operates in a fiercely competitive industry, particularly brokerage and investment banking. As a result, if it fails to compete effectively with its competitors, its brand image, financial performance, and the economic position may suffer.
  • Technical weakness: On the weekly chart, NMR price is trading below the downward sloping trend line and facing the resistance of the same. Furthermore, the momentum oscillator RSI (14-period) is trading at ~31.56 level, trading in negative territory. On the weekly chart the prices are trading below the trend-following indicators 21-period and 50-period SMA, which may act as a resistance level for the stock. An important support level for the stock, is placed at USD 3.55 while the key resistance level is placed at USD 4.50.

Valuation Methodology: Price/Earnings Value Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

NMR's share price has declined 17.01% in the past six months and is currently trading at the 52-week low   of its range of USD 4.05 to USD 5.65. We have valued the stock using the Price/Earnings Value-based relative valuation methodology and arrived at a target price of USD 3.63.

Considering the company's highly leveraged balance sheet, weak margins, current valuation and associated risks. We recommend a "Sell" rating on the stock at the current price of USD 4.05, down 0.49% as of April 11, 2022, at 10:37 AM PDT.            

Three-Year Technical Price Chart (as of April 11, 2022, at 10:37 AM PDT). Source: REFINITIV, Analysis by Kalkine Group

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.