NOBLE ROMANS INC (NROM) stock intrinsic value fair value estimate & owner earnings analysis

Noble Roman's has two businesses. The valuable one sells and supports a pizza program (Noble Roman's Pizza) inside convenience stores, travel plazas and hospitals, collecting a 7% royalty on franchisees' sales plus initial fees, equipment commissions and ingredient allowances. In 2025 this franchising business earned about $4.5 million of contribution on $6.2 million of revenue, up from $3.8 million in 2024. The second business is nine company-owned Craft Pizza & Pub restaurants, all in the Indianapolis area. They produced $8.8 million of sales in 2025, with same-store sales up 2.3%. No new restaurant has been built since 2021, and the restaurant segment (which also includes one company-operated hospital location) contributed roughly $1.1 million before corporate costs. What changed since our last review: on June 10, 2026 the company replaced its expensive lender (SOFR plus 9%) with a five-year, $6.9 million term loan from Lake Forest Bank at SOFR plus 4%, repaid $575,000 of subordinated notes, and paid $500,000 to repurchase and cancel the lender's warrants, so the share count that matters going forward is 23.4 million diluted shares rather than the 32 million that 2025 showed. The loan is secured by all assets, carries financial covenants (in compliance at June 30), and we use its full $6.9 million face amount, not the $6.4 million shown on the balance sheet after closing costs. Our earlier figures were struck on a different footing and are not comparable with these. The earnings level. We measure the cash the business produces before paying its lenders, after stock compensation and after the equipment spending needed to stand still, and we strip out swings in receivables, prepaid items and payables. On that basis the business produced about $1.86 million in 2024 and $2.86 million in 2025, and we anchor on their midpoint, $2.36 million a year. 2023 is excluded because it contained a one-time pandemic Employee Retention Credit (about $1.46 million), and 2022 and earlier describe a company still building restaurants or hit by food and labor inflation. Cash flow in 2025 absorbed about $0.87 million of working capital, but receivables did not balloon (net receivables $0.59 million in 2024, $0.74 million in 2025); the drain came mostly from paying down payables from $1.28 million to $0.70 million over 2023-2025 and from higher prepaids, which is a one-time normalization rather than a permanent leak. The first half of 2026 supports this level: operating income was $1.26 million against $1.24 million a year earlier, cash from operations $1.13 million against $0.60 million, though second-quarter operating income was 14% lower and general expenses are rising as sales staff are added. Cash taxes are currently zero because of a $3.0 million tax asset, which management expects to use over about five years; we charge a 24% cash tax once it is used up. Trailing growth in this cash flow was 54% in 2025; our base case assumes only 4.5% for the first year, so no reversal of a slowdown is assumed. Growth credited. Franchising has added roughly 62 outlets a year on average over 2023-2025 (about 60 opened and six closed in 2025; 18 opened and two closed in the first half of 2026), the company reports about 75 units sold but not yet open, and a late-2023 agreement calls for a franchisee operating a chain across the southern third of the United States to develop 100 units over three years. Those are the evidence for growth. Each added unit is worth roughly $7,000 a year of contribution, a little below what 2024-2025 results imply. The base case adds 235 net units over ten years (30, 35, 35, 30, 30, 25, 20, 15, 10, 5), well under the demonstrated pace, then lets the royalty base shrink 5% a year after year ten (franchise agreements run ten years and are renewable, and closures have been few). We also deduct an extra $150,000 a year of equipment spending because 2025 spending of $144,000 is far below depreciation of $393,000, and the restaurants are 5 to 9 years old. Left out: price increases, restaurant sales growth, margin gains, any franchising of the full-service Craft Pizza & Pub format, and any pace above the 2023-2025 record, because none is contracted or proven. The cases (value of the business, what it owes, what is left, per diluted share): - Base: the business is worth about $34.8 million; net borrowings, including the loan's higher-than-bond cost, come to $6.4 million ($6.9 million face plus $0.29 million for paying about 7.9% interest, less $0.8 million of cash beyond operating needs); $28.4 million remains, or $1.21 per share. - Bull: franchising keeps its recent pace (440 net units over ten years, $8,500 each, no extra equipment spending, slower fade after year ten of 3%). The business is worth $55.2 million, debt is the same $6.4 million, leaving $48.8 million, or $2.08 per share. - Bear: a repeat of 2022, when food and labor inflation left the cash available to owners negative and cash before debt service was about $0.1 million after $0.5 million of equipment spending (about $0.6 million before it). Cash flow is $2.0 million next year (second-quarter operating income is already 14% lower), $0.7 million for two years, then recovers only to $1.2 million and $1.7 million with no further growth, equipment spending of $0.26 million a year, and an 8% annual fade after year ten. In those two years $0.7 million of cash flow, less $0.26 million of equipment spending, would not cover roughly $0.5 million of annual interest plus the loan's monthly repayments, so lenders would charge waiver fees and higher rates and possibly require new equity; we add $2.0 million for this. The business is worth $12.9 million, the company owes $8.1 million, leaving $4.8 million, or $0.20 per share. Four restaurant leases expire in 2027-2028 (each has two five-year renewal options) and the bank's covenants are the points most likely to bite. Challenges we ran. If only half the base-case franchise units open, the value is about $0.97; if cash flow stays flat with no new units at all, $0.73; if the anchor is set at the weaker 2024 level only, $1.01; if the post-year-ten fade is 8% instead of 5%, $1.07. Details we could not reconcile from the filings: the loan's exact repayment schedule (we assume even repayments over five years) and the total number of franchised outlets, which we could not locate in the filings. Margin-of-safety price. We are reasonably sure of the earnings level: 2025 and the first half of 2026 are consistent with each other (operating income flat), 2024 was lower, and we anchored between them; the franchising royalty is contractual, 7% of franchisee sales, and mostly collected weekly by direct debit. The most plausible harm is another cost squeeze at the restaurants or a covenant problem during one: the lender holds everything, the equity is thin against $6.9 million of debt, and a meaningful part of the near-term pipeline depends on one developer's 100-unit agreement. If we are wrong about unit growth, margins or the fade, the shares are still worth about $0.7 to $1.1 in our tests; in the bear case they are worth about $0.20. We do not count on a dividend, so the return over the holding period comes from the loan being repaid and cash building: assuming even repayments and retained cash, we estimate five-year values of about $0.96 if no new units are ever added, $1.59 in the base case and $0.38 in the bear case. The price assumes a holding period of up to five years. From $0.39 the no-new-units outcome implies about 20% a year, the base case about 32% a year, and the bear case roughly a return of the $0.39. That is why the margin-of-safety price is $0.39.