MicroCapClub Invitational: Noble Roman’s (NROM)

Ian Cassel 2013 Invitational, Blog 23 Comments

Over the years I’ve found that restaurant roll out stories can capture more momentum and trade at higher multiples then even tech stocks.  Buffalo Wild Wings (BWLD) and Chipotle (CMG) are prime examples of such companies that have captured the attention of Wall Street over the last few years. Noble Roman’s (NROM) is an undiscovered food franchising-licensing company with 35%+ operating margins at an inflection point of growth. The company is targeting the fastest growing segment of the pizza industry, the take-n-bake arena. Since 2010, the company has signed take-n-bake supply agreements with over 1300 grocery stores.  In mid-2012, Noble Roman’s entered the standalone take-n-bake market place with their own franchise concept. In a few short months the company has signed agreements for 9 locations, 3 of which have already been opened.  Listen to CEO Paul Mobley as he tells the story.


DisclosureAll participants on the presentation are LONG NROM. This presentation was recorded on January 21st. The company DID NOT compensate MicroCapClub to present.

MicroCapClub Invitational Presentation Lineup and Dates:

January 3rd: Where Food Comes From (WFCF)   [VIEW PRESENTATION]
January 7th: OptimizeRx (OPRX)   [VIEW PRESENTATION]
January 10th: Abtech Holdings (ABHD)   [VIEW PRESENTATION]
January 14th: Parametric Sound (PAMT)   [VIEW PRESENTATION]
January 17th: NXT Energy (SFD.V)   [VIEW PRESENTATION]

January 24th: Bridgeline Digital (BLIN)

January 29th: Vertex Energy (VTNR)

January 31st: Greystone Logistics (GLGI)

February 4th: Charles & Colvard (CTHR)

February 7th: rVue Holdings (RVUE)

February 11th: BioSyent (RX.V)

The MicroCapClub (mc2) is an exclusive microcap forum focused on microcap companies (sub $300m market cap). The MicroCapClub was created and founded by Ian Cassel as a way to share ideas and to learn from other seasoned like-minded microcap investors. Our goal at MicroCapClub.com is quality membership and quality stock ideas.  If you are an experienced microcap investor, feel free to Apply today.

Comments 23

  1. Hi, presentation. I had a question regarding food stamps and the competition. Could Pizza Hut decide to offer uncooked pizza in their current locations and accept food stamps. I realize full cooked pizzas are ineligible but I’m worried the competition could easily without any additional cost offer uncooked pizza. Do you know the exact details of business eligibility? I assume it’s done by product and not location as I imagine some things in a grocery store would be eligible and some not. I am Canadian however so I do not know. Thanks,

    1. Post

      Any of the big four including Pizza Hut, which you focused on, would have to change their dough formulation to be able to sell a quality take-n-bake pizza. They all use dough with live yeast and they all use sauce containing acid. When you put the sauce on the crust, there is a chemical reaction where yeast turns acid bitter and acid kills yeast. Therefore, if Pizza Hut topped their existing crust and didn’t bake it right away, the quality of both the crust and the taste would deteriorate quickly. That is why when you go into Domino’s, Pizza Hut or Papa John’s, they do not have any crust pre-topped prior to the rush which could speed up their times considerably – they all top the pizza right before they bake it. In addition, they would be competing with their own delivery concepts.

      1. Understood, however, it’s just a different dough formulation. The big 4 have such a massive sourcing/distribution network that I don’t see this as a very big barrier to entry at all. They just send 5 boxes of “cook” dough and 2 boxes of “uncooked” dough. Does it add to cost at the margin? Sure, but I’m sure they could make it profitable and get a slice (pun intended) of the fastest growing segment. I don’t think they are really competing with themselves in any material way. Many of Roman’s customers already passed the Pizza Hut on the way to Noble’s. That customer was already lost (whether because they needed take and bake or wanted to use food stamps). What do you think of the possibility of one of the bigger companies acquiring Romans?

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          There is always competition risk, which is why I look at it differently then most. My bet is Paul rolls out 10-20 of these stand alone’s in the next 18 months. The grocery store vertical continues to gain 400+ stores per year which is what he’s done historically. That would be equivalent of adding another $1-2 million of bottom line (or 5-10c EPS), and puts the company on a 12-18c EPS run rate. Put a 12-15 PE on it and the stock is considerably higher in a year. What does the competitive landscape look like in 3 years? I don’t really care I guess. Although I do think NROM would be an acquisition target given it’s foot print.

          1. Matt-

            I’m glad you enjoyed the presentation. I disagree with your viewpoint of Pizza Hut or Domino’s rolling out this product and having it be an easy transition. They couldn’t sell Take-N-Bake at any of their stores and be eligible for food stamps since they already have ovens inside. The key to being able to accept them is not being able to cook anything in the building. Domino’s recently executed a successful menu/product change so I don’t see them doing anything. I don’t see Pizza Hut opening up several take-n-bake restaurants to change up their successful model.

            Noble Roman’s happened to fall into this opportunity that makes total sense with the supply chain that they have in place.

            The franchiser will have many obstacles while trying to grow. Infrastructure, supply chain, and the right operations partner to make sure the franchiser can collect on their monthly royalty and make sure the ROI is good for the investor so their success attracts more. The supply chain already in place throughout the lower 48 states is a BIG deal. The infrastructure will build itself internally as demand increases. Noble Roman’s TNB model is very simplistic and easy for an investor to buy into and easy to run. Those are all very important.

          2. Thanks Sean. Could you clarify the SNAP rules? As I understood it, eligibility is granted per item not per store. So some items in a grocery store are eligible while others are not. So by the same token, why can’t uncooked pizza be eligible while the cooked pizza is not in the same location? Would love to get a source for your assertion that an existing Pizza Hut location could not become eligible for only the items that are uncooked. I agree with many of the other points. This point I’m harping on, because I see it as a huge risk (Pizza hut could tell their distributors to get new type of dough and deliver them to all locations within a couple months I bet). I agree with you on the other points.

          3. Matt –

            I’m not familiar with all the SNAP rules in complete detail. All I know is that I asked Paul (CEO) about this question in detail. He said any establishment that has an oven inside it’s building cannot accept food stamps. I’m sure there are a few stipulations here and there but I haven’t gone through in detail. I just have the feeling that this company is headed down the right direction from where they were a few years ago.

  2. Matt, you might ask yourself just why haven’t the BIG FOUR(pizza vendors) already instituted a Take and Bake menu in response to PAPA MURPHY’s over 1300 store take and bake chain?

    1. You might ask yourself why it took years and years for Microsoft to get into the moblie game, or why RIM did not innovate into touchscreen phones sooner. Just because the dominant players don’t see a change in their industry for years does not mean they don’t finally come around and put a boatload of money to work trying to catch up. The level of threat I’m speaking about is subjective, granted, but the fact that Pizza Hut COULD have food stamp eligible pizzas in every location in 3 months appears to be a fact (because no one here can dispute it). As I said, I agree with the positive. Just playing devil’s advocate here.

      1. Good point Matt. But while you have been “playing devil’s advocate” the stock is up over 20%. That’s not to saying all your conclusions are incorrect on the NROM’s business plan. That’s just saying that your current conclusions just may keep you from realizing a 100% plus return while you waiting for those conclusions to be fulfilled.

        1. Well it’s a small cap stock with low liquidity. Doesn’t take much to pop a stock like that 20%. Doesn’t mean it was the market as a whole recognizing the fundamentals.

          But point taken, you are up 20% on the position and I am not.

  3. Post

    I actually believe the grocery store take n bake would almost be more of a reason for a take out offer then the stand alone. The foot print they are building now at 1300 grocers in 2.5 years is quite impressive.

    1. Oh yes, I agree. If it’s a takeover by a bigger player, there would probably be cannibalization with the acquirer’s locations, so they would slowly dispose of the stand alone take and bakes. But they would get the grocery story/non traditional businesses while at the same time taking out a fast growing competitor (probably more likely with Papa Murphy’s than NR).

  4. Updated PR from NROM issued today. Looks like they signed up two more independent take and bake stores the last couple of weeks. Hoping to have all 11 contracted for open by mid year. Better news yet IMO, is that they now have 1445 take and bake grocery stores open currently. And that folks is up from the reported 1010 as of 11/6/12 that they disclosed on their last earnings report PR.—Steady as see goes and since the stock has retreated to the low 90’s, I believe the market has created another great buying opportunity.—For myself I’m waiting to see what Stiller does in the next couple of weeks. Since I believe he is now able to unload another of his large block trades(sold 190,000 shares the previous 2 quarters).

  5. For those interested, i’d suggest you google and read a PR issued this morning by Papa Murphy’s titled “Papa Murphy’s Ends year With Biggest Two Year Sales Comp since 2007-2009”.

    1. Post
      1. Ian, Did you note the upfront cost of starting a Papa Murphy’s? Now if all other things are equal in Nobel Roman’s vs Papa Murphy then I would say NROM has quite a selling point to potential new franchisee’s going forward.

      2. For those interested Papa Murphy’s filed yesterday for an IPO. It would be interesting to hear if NROM’s management has any comment on the Papa Murphy filing at today’s conference call.

        1. Post
  6. Some issues rising from the presentation above (Jan, 2013) confronted with the results so far, at the end of 2014 –

    1. Significant gap between expectations and reality –

    Expectations – $20,000-$22,000 a year per location. vs. Reality – about $5,600 a year per location ($4.3m divided by approximately 760 locations).

    Expectations – $2,000-$2,200 a year per location. vs. Reality – $1,090 ($1.3m divided by approximately 1200 locations).

    2. Decline in the numbers of distributors to 10 in the end of Q3, 2013, from 14 in the end of Q3, 2012.

    3. Secular decline quarter by quarter along 2013 in revenue from the grocery segment.
    That’s although the number of opened TNB grocery locations had raised from 1,075 in the end of 2012 to 1,250 in the end of 2013. That means there was a decline in the revenues per grocery locations, and that tells us that there were less NROM products sold per location.

    I’ll be happy to read your thoughts on these issues.

    1. Not much you can say about those numbers. It’s clear the sell through is not there for either the non traditional or the grocery stores. The Take N Bake franchise group IMO will either make them or break them in the long run. If they begin to fail then it’s only a matter of time before Nobel Romans fails. How much time? Who knows?

    2. Post

      I would agree with your analysis, and as you’ve noted a lot has happened since this presentation. TNB needs to work for this to be a growth name. We know Q1 2014 won’t be that great per the earnings CC. So unfortunately it’s a waiting game.

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