We Roll Forward Our Forecasts for Japanese Brokers; FVEs Unchanged, Nomura Still Undervalued

We roll forward our model for the Japanese securities industry by a year and keep our fair value estimates of JPY 615 for Nomura and JPY 650 for Daiwa Securities, respectively. Our fair value estimate for Nomura’s ADRs declines from USD 5.45 to USD 5.00 to reflect the yen’s depreciation versus the U.S. dollar. Although we forecast that Daiwa’s future earnings will be closer to meeting our assumed 8.5% cost of capital than Nomura’s, at current valuations (0.50 times book value for Nomura and 0.67 for Daiwa) we see Nomura as undervalued and Daiwa as fair. Our fair value estimate for Nomura, which is equivalent to 0.64 times book value, is 27% above the current share price.