$NROM – Noble Romans Pizza – Undervalued Growth?

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Noble Roman’s Inc ($NROM) is a company that sells pizza.  That’s a simple explanation, so let me go into more detail.  $NROM has been around since 1972, and recently has shifted its focus into the Take -N-Bake Pizza industry.  Prior to the past year, Noble Roman’s had two main lines of business: selling through non-traditional locations and through franchising restaurants.  They were not successful in the franchising business with traditional pizza restaurants, and just closed out some pending lawsuits which the company won.  The non-traditional business is now the main source of revenue and profits (grocery stores, convenience  stores, etc…) but the real opportunity arises around franchising their Take-N-Bake pizza program.   Going forward, I see Noble Roman’s focusing on selling Take-N-Bake standalone franchise licenses and growing their Take-N-Bake sales to grocery stores.

Noble Roman’s is in the business of selling franchises and licenses to their pizza and subs products.  I don’t view the sub/sandwich business as being a focus for the future of the company.  All food items are handled by third party companies, so when a franchisee or licensee needs to place an order, that order is sent to third party manufacturers who will fill the orders placed.  Therefore, $NROM collects fees and royalties and focuses on marketing their brand and product offering.  This is a high margin business as evidenced by their 35% operating margins.

The Non-Traditional business is roughly flat, or in slight decline over the past 3 years, and contributes around $4-$4.2M of revenue per year.  Non-Traditional licensees have been growing in number over the past three years, but revenue per licensee has declined from ~$4k per licensee to ~$2.3k per licensee during the past 3 years.

The Take-N-Bake (TNB) Grocery business has been a growth engine for Noble Roman’s and the company has grown the number of grocery stores from 87 in 2009 to 1350 in 2012.  There is a lag from when a grocery store signs an agreement with $NROM to the point that they are selling product.  $NROM receives $1.16 per pizza sold by a grocery TNB grocery location and $NROM states that they expect to receive between $2k and $2.2k in revenue per grocery store per year.  To date, I calculate that $NROM has not achieved this revenue target, and it is closer to $1500 per active grocery store, and $1000 per store for the total signed locations.   Remember, there is a lag between a signed grocery location and when the location starts to create sales.  Noble Roman’s has been able to add 300-400 new grocery locations per year, and they have a long runway to add many more grocery stores.  Read some of the below links to get a better understanding how the grocery business works through aggregators, distributors and individual grocery stores.

The newest line of business is the standalone Take-N-Bake franchise opportunity.  The brand of the new business is P’za.  The company opened up two locations in 2012, and has signed an additional 6 franchise licenses.  All locations are in the state of Indiana, and have been sold to existing $NROM franchisees.  These were traditional franchises that had an existing relationship with Noble Roman’s and have bought into the new Take-N-Bake opportunity.  Clearly the company is focusing on growing this business, and expects $48-$72k per franchise location per year in fees and royalties.


  • Debt restructure – Libor + 4% (4.25%) which is much lower than the previous interest rate of 7-8%.  No prepayment penalty with a 48 month term.  The company will be able to save money each month due to the lower interest payment.
  • The on-going litigation has come to a conclusion, and Noble Roman’s was awarded damages.  The ongoing trial has been a drag on management and costs as they fought the lawsuits.  This has now come to a conclusion in favor of the company.
  • New Take-N-Bake Franchise Opportunity – Papa Murphy’s is the largest player in this market, and has seen excellent growth throughout the U.S.


  • Take-N-Bake Franchise Opportunity is new – It is hard to forecast this line of business because it is a brand new business that the company is creating.  They had experience with traditional pizza restaurants, however, the business underperformed.  Can $NROM launch a new franchise business and make it successful this time?
  • All Franchise locations have been in Indiana and to existing franchise owners.  There is high risk to recruit new franchise owners outside of the company’s existing relationships.  Can $NROM market their new concept to gain new franchisees and compete against Papa Murphy’s?
  • $NROM has a market cap of ~$20M which puts the company at a disadvantage due to the lack of financial power to grow a franchise business.  I think this is somewhat minimized since Noble Roman’s has other lines of business bringing in revenue and cash flow.  In addition, the company has the backend process and support infrastructure in place to grow the business.  The investments have been made, so Noble Roman’s does not need to build this process from scratch.


The company does not carry and goodwill or intangibles on the books and carries a very large NOL.  Currently $NROM’s stock price is at $1.03 with 20M shares outstanding.  Book value is at 0.64 amounting to a P/B of 1.6, however, the business is asset light and doesn’t require heavy CapEx to run and scale the business.

I calculated the net reproduction cost of the business at $0.75.  The company’s stock price has run up in the past couple of months.  If the company’s stock price was still under the reproduction cost, it would be a good buy.

I calculated the EPV of the business at $0.94, which takes into consideration current earnings without any growth component.  It is very hard to forecast forward earnings with high accuracy, so I like to use the Greenwald  EPV model.

In addition, I used the latest EBIT value and add a 5x-8x multiple, then added Cash, NOL and subtracted total debt to estimate a value between $0.88-$1.28 per share.

At the current price of $1.03, I believe the company is fairly valued, but would be interested in the stock if the price were to drop back down to the $0.75 range.

Disclosure: No Position

Additional Reading:

January 2013 Company Presentation: http://www.slideshare.net/iancassel/microcapclub-invitational-noble-romans-nrom

August 2012 Company Presentation: http://www.nobleromans.com/pdfs/2012%20Presentation%20PDF.pdf

The Variant View Blog: http://thevariantview.com/tag/noble-roman/

Seeking Alpha article: http://seekingalpha.com/article/853531-noble-roman-s-inc-who-knew-pizza-could-be-so-profitable


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Tagged on: noble roman, nrom
  • http://twitter.com/iancassel Ian Cassel

    Fair analysis. Good post. With the operating leverage of the model, a little growth on the top line will go a long way towards moving up fair value. 

    Ian Cassel

    • http://raybonneau.tumblr.com/ Ray Bonneau

      Thanks for the comment, Ian.

      I’ve read your analysis (very good by the way), and I believe you were able to get in at a price that provided a safer entry point.  I’ll be keeping an eye on $NROM, but I’d like to see some traction of the TNB franchise business.  So far it looks like they have just used some existing franchisees to bring the concept to reality.  Personally I would like to purchase at a price where I get the growth for free, which would protect the downside.  I don’t like to pay much for growth without any existing history to judge performance. 

      The grocery TNB has traction and can be more accurately predicted.  I like the growth here, but I believe they will be spending some money to build out the standalone TNB business. 

  • Connor Haley

    Very long NROM. I think using 5-8X ttm ebit is not the right way to value it imo. Company clearly has strong growth drivers in grocery store business and individual take n bake stores. Closest comp PZZI trades much higher than those multiples and has an inferior business model. I am a very big fan of Greenwald as well, but using EPV here is not right IMO, since company’s growth– especially in the grocery segment, is very visible. They already have contacts with 10,000+ stores through their grocery store distributors. Should leave plenty of room to add 400+ per year over next few years.



    • http://raybonneau.tumblr.com/ Ray Bonneau

          I’ve read your analysis, and comments on seekingalpha.  You’ve definitely put in a lot of research into the company.  I’m more conservative by nature, and I can see your point about the best method to use to value the business.  I just see more risk than I’m willing to pay for at the current price level.   I would love to see some pullback where I would have a nice entry point.  I’ll be keeping an eye on things for sure.

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  • Margo Mead

    The facts are the this is a bad franchisor and they are very litigious. They have an unproven business model in their take-and-bake pizza franchises, and they are jumping states to places where no one has heard of them to open franchises. It shouldn’t be a surprise that those franchises are failing and their owners are losing their entire investment–plus most likely going bankrupt. And then Noble Roman’s responds by suing them for not staying open for the 10 years they agreed to in the franchise agreement! Don’t invest in this company. They don’t need the encouragement.

    • http://raybonneau.com/ Ray Bonneau

      Thanks for the comment Margo. It sounds like you have some useful information concerning the rollout of the stand alone concept.

      It appears that they are struggling with the stand alone franchise model, as in the latest 10-Q/CC Transcript they discussed some locations have closed and to expect some more this Q. They blamed it on being to open with whom they selected, and are now being more diligent on who they accept. I don’t buy that excuse myself, as they’ve stated early on that they were going to be diligent, so something is going on there.

      They grocery business is doing very well though, and the company could be on a great trajectory if the stand alone model would gain momentum and success.

      • Margo Mead

        They had 2 locations in Oregon. One closed within 6 months of opening. The other just recently closed after about a year and a half. The fact that they have shown that they will sue the owners of closed stores for “lost royalties” is just unconscionable in my mind.

        It’s hard to keep a handle on your cost of sale when the pizzas are the same price no matter how many toppings.

        I once was unfortunate enough to buy into an unproven and fairly unknown franchise that was trying to expand way too fast. In 2007 they had 43 stores and then they started imploding. Stores were closing left and right. They raised prices on the supplies that we had to buy from them, and they changed suppliers and sold us lower-quality supplies for those higher prices. We managed to get out before we had to declare personal bankruptcy, but it was close. Today they are down to 19 stores (with two unfortunates just opening in Texas–how they keep selling franchises with their track record is very puzzling). But they’ve shown time and time again that they don’t really care about the franchisees–just about their bottom line. At least they didn’t go as far as Noble Roman’s does.

        I would imagine that “being more diligent” means making sure the potential franchisee has enough savings to keep pumping money into the store, insuring that Noble Roman’s is making money for a longer period of time.

  • dave

    What about the california ? have they store in calfornia .Papa murphy’s is doing good in California.I as thinking they would like to compete papa murphy but after reading margo they are not sincere towards their franchise owners. If we look on their model it is good and impressing,low cost start up is low but they are not doing well as we expect closing of take and bake stores is not good for company. what is the reason of closing new stores ?