[Nick Hargrave]

Real Luck Group (TSX:LUCK) is an esports betting technology business listed in Canada. The company provides the technology for people to bet on esports competitions and matches, combining the huge and growing market in esports with the centuries old desire of humans to gamble.

I have been a shareholder for some time but have been hesitant to highlight the idea given the very early stages of its revenue and the need to prove progress – while you can build models using some industry metrics for users, acquisition cost per user and revenue per user from public peers in the industry such as DraftKings and XLMedia, these can generate almost any value you want without a proper grounding in company’s actual performance. However, the company has received an unsolicited and highly opportunistic takeover approach and the management and board, which are really the key to entire investment thesis, are once again acting in an exemplary manner and have forcibly rebuffed the approach. The approach may, however, catalyse the share price which is demonstrably undervalued as it has been trading below its cash balance for some time. Let me explain.

When the markets were still buoyant early in 2021 and investors were still interested in high growth technology businesses, the company raised C$17m at a price of C$1.20 under the previous CEO. This was an excellent fund raising and ensured the company was funded for its expansion, but it was after this that the situation got really interesting. As part of the push to drive growth and expand, the CEO hired Thomas Rosander (see here for brief overview of Thomas and other team members https://www.realluckgroup.com/investors) who has a very strong track record of success in the online gambling industry. Within just a few months, the board were so impressed with him and his strategic plans that they took the highly unusual step of asking the then CEO to step down and installed Thomas in his place. This was a huge display of faith, given what happened next.

Thomas, now CEO, initiated his strategic plan which essentially consisted of stopping all current revenue in order to re-build and re-purpose the platform to ensure it was clearly differentiated and ahead of the competition in providing the customer experience that he wanted to achieve. He spoke passionately about executing a vision that he had dreamed of for some time in previous roles but was now in a position to execute. The short termist market, of course, punished the company for daring to act in the long-term interest of building value and the share price cratered to under C$0.10 as there were no immediate revenues. But this is the kind of behaviour I dream of from management and is so very rare – having the conviction to do the right thing for long term value creation and ignore the market reaction.

The company completed the rebuild of the entire platform earlier this year and launched ‘standard’ casino products (in which management have long track records of success) to drive shorter term revenues and provide cash flows for long term growth, negating (hopefully) the need to raise further capital. In the meantime, Thomas has attracted an impressive senior team and the board has been bolstered by the likes of Bo Wänghammar (see team link above). The business began actively marketing and acquiring customers in August and has disclosed early success (see here https://www.realluckgroup.com/news), though very few actual numbers have yet been disclosed, hence my hesitation in highlighting the unproven opportunity.

However, the company has now disclosed that an individual (Adam Arviv of KAOS Capital) has been acquiring shares in the company (a holding that he has not disclosed) and made an opportunistic and derisory offer to acquire the company at below the value of its cash in order to simply take the cash below par value (see https://sophiccapital.com/investment-ideas/luckbox/?qmodStoryID=4541385160996144&_kx=0lUSMPHZeuzyvlEdGBGiHxWS0sNVtYF7dFU3Gmf8F-0%3D.RvxyY9). This may now highlight to the market the absurd undervaluation of the company if you believe at all that this team can make money, literally $ for $ spent, on their cash pile from gambling, in a market where the bettors of the future are going to be. Without knowing his shareholding, however, it is difficult to calculate the risk of any action succeeding to the detriment of other shareholders.

While difficult to prove externally, Thomas claims their technology and platform is now way ahead of rivals, and with new micro-transaction features coming to market – some of these rivals were previously acquired at multiples of LUCK’s valuation (see https://esportsinsider.com/2021/08/entain-unikrn). Of course, there are many large competitors out there in the already highly competitive online gambling space (e.g. DraftKings), so this a very high-risk proposition and isn’t an investment decision to make lightly. With no disclosed KPIs or financial progress as the company utilises its cash, this is a faith-based investment with a need to bet on the jockey that he can deliver the business to profitability in the next 6-10 months with the current cash available. This board and management stand among a rare breed make tough decisions to focus on maximising long-term value and I think the business’ progress is well worth following. Here’s the link to the company’s August AGM presentation for initial company review: https://static1.squarespace.com/static/5fbcd5d71156434d00d23d0f/t/62fa6891b433702f92156daa/1660577939691/LUCK+AGM+August+2022.pdf

Topic

[Nick Hargrave]

https://www.newsfilecorp.com/release/179872?_kx=0lUSMPHZeuzyvlEdGBGiHxWS0sNVtYF7dFU3Gmf8F-0%3D.RvxyY9

Positive development of an LOI signed to ensure funding, but further details awaited to understand if this will deliver value to current shareholders

[Nick Hargrave]

https://www.newsfilecorp.com/release/177128?_kx=0lUSMPHZeuzyvlEdGBGiHxWS0sNVtYF7dFU3Gmf8F-0%3D.RvxyY9

A concerning development with the company not being able to raise equity through a brokered placing. The company managed its resources so well for a long time but let the purse strings open for just one quarter earlier this year leaving it exposed to one of the most difficult fundraising environments on record just before it reached breakeven. The operations continue to deliver while being streamlined and both the B2C and B2B products should each be worth more than the current market cap, but with the “significant interest” shown in these operations it now looks likely that one or both ‘divisions’ will be sold. Given the small exposure in the model portfolio with available cash for new and add-on positions, we will retain the option on the value for now as the likely outcomes become clearer, albeit there is clearly now a much greater risk of the downside scenario.

[Nick Hargrave]

https://www.newsfilecorp.com/release/171448?_kx=0lUSMPHZeuzyvlEdGBGiHxWS0sNVtYF7dFU3Gmf8F-0%3D.RvxyY9

The company announced a C$2.4m placing to fund the B2B launch and working capital until breakeven. The placing was originally announced to be at C$0.12 but given the horrendous markets, particularly in the micro-cap space with limited liquidity, and the Q1 marketing costs spooking investors, the placing is now being done at C$0.04 with warrants at C$0.08. This is obviously very disappointing dilution with the business being effectively valued on its cash balance with no value attribute to the growing business and the potential of the B2B product

I have been in contact with the CEO, Thomas Rosander, and he continues to believe that the B2C business will be breakeven in 2-3 months and remains very bullish on the potential for the new B2B business. He has provided me with an updated presentation deck – please email me (nick@moultonharrox.com) if you would like to see it.

The deck gives a high level overview of the B2B product, which allows for real time, high frequency betting on live sports with a betting market overlay synchronised to the live broadcast. This is patent pending proprietary technology. As an example, during a live football game the overlay will pop up with a bet for “Will Chelsea score in injury time, yes or no?”. During a basketball game the overlay will offer a bet of “Will X team score 25 points or more in the next quarter”.

The potential of this business appears enormous with the strategic B2B partners to be announced in Q4. However, with cash being carefully managed alongside this relatively small raise, this investment idea remains a ‘bet on the jockey’ that business will reach profitability as expected and the new product will be successful as the CEO believes.

[Nick Hargrave]

https://www.newsfilecorp.com/release/167877?_kx=0lUSMPHZeuzyvlEdGBGiHxWS0sNVtYF7dFU3Gmf8F-0%3D.RvxyY9

The release of the Q1 results highlights the need for additional funding previously highlighted given the marketing cost spend on new subscribers, which was greater than our expectations. While the latest KPI update shows continued top line growth with greatly reduced marketing spend, the Q1 spend significantly reduced cash balances. While management has proved very capable, revenue from new B2B agreements or significantly reduced marketing spend are required to extend the runway to potential funding, where the terms in the current market may not on the terms originally hoped. The business does appear to be achieving its targets, but the next couple of months require the cash flow needle to be threaded to ensure the potential is achieved

[Nick Hargrave]

https://www.realluckgroup.com/news/real-luck-group-files-2022-results

The company has filed if FY 22 results and provided some basic figures for the first time to start to substantiate our investment thesis:

Full year expenses amounted to c.C$9m, but as this included some exceptional consulting and professional fees for listings and capital markets consultants as well as the full re-development of the platform, we assume a run rate of C$8m. For FY 22, the business generated C%160,000 revenue from C$3.2m betting handle, equating to 5% revenue as a % of handle. In the single month of Mar-23 the business generated C$5m of handle, which at 5% equates to C$250,000 revenue for the month. The company has previously stated it needs C$12m in handle to breakeven and this is now supported by the figures disclosed – C$12m in handle at 5% is C$600,000 monthly revenue, equal to C$7.2m annual revenue which is close to our C$8m of run rate expenses.

With the company expecting to be at breakeven on a monthly basis in H2 23, they need to go from C%5m of handle in Mar-23, up from $2.8m in Feb-23, to $12m in (probably) Jul-23, which looks achievable given the current growth trajectory i.e. Feb to Mar growth was 79%, so for the 4 months Mar-Jul they would ‘only’ need 25% monthly growth. Our previous C$2.5m annual EBIT estimate implies revenue of C$10.5m which at 5% of handle implies C$210m annual handle or C$17.5m monthly handle. We hope that the company continues to publish monthly updates so that we can monitor the trajectory.

This all, of course, excludes any revenue from the new B2B micro-betting product to be launched late in the year, for which development expenses have been included in the FY 22 and run rate costs.

However, in the notes the company also discloses an ongoing placing, resulting in equity dilution which is unfortunate at the current price despite previous statements that the business is funded through breakeven. Upon public announcement of the placing in the coming days, we are very interested to understand what this funding will used for to justify the dilution at current prices.
“The Company has commenced a non-brokered private placement offering up to approximately $2,400,000. The issue price is $0.12 per unit and each unit shall consist of one common share of the Company and one common share purchase warrant. Each warrant shall be exercisable into one Common Share of the Company for a period of 36 months from closing at an exercise price of $0.24 per common share. The closing date is expected to be on or about May 5, 2023.”

• This reply was modified 12 months ago by Nick Hargrave.

[Nick Hargrave]

More strong progress in March with continued growth

https://www.realluckgroup.com/news/real-luck-group-announces-strong-march-kpis-amp-record-q1-1

[Nick Hargrave]

Confidence continues with the CEO’s management “Dream team”. Growth continues with March ahead of expectations

Response to the new B2B micro-betting product from potential customers has been “Overwhelming”

[Nick Hargrave]

Valuation assumptions: In the 9 months to Sep-22 the company has expenses of c.C$6m, which equates to c.C$8m on an annualised basis, including some exceptional consulting and professional fees. With the company expecting to breakeven on a monthly basis in H2 23 and given its rate of top line growth, it doesn’t feel unreasonable to assume that the business can easily scale to C$2.5m EBIT or C$1.5m in a risk scenario in fairly short order. We apply multiples of 12x and 8x in the thesis and risk scenarios respectively. We of course believe that the company has the potential to greatly exceed these numbers, but even at these levels we highlight how absurd we think the current valuation is if you believe in the business model and the management team.

• This reply was modified 12 months ago by Nick Hargrave.

[Nick Hargrave]

Progress continues apace at LUCK. While we still await more detail on financial metrics, the pace of operational growth is impressively in line with the CEO’s continued confidence even before the B2B product launch in H2 23 upon which they are expecting to build the future. See announcement below, released just now

Real Luck Group Announces Triple Digit Growth Across Core KPI’s
Record Monthly Betting Handle In February

Calgary, Alberta and Isle of Man, Isle of Man–(Newsfile Corp. – March 7, 2023) – Real Luck Group Ltd. (TSXV: LUCK) (OTCQB: LUKEF) (“the Company”) and its subsidiary companies doing business as “Luckbox”, an award-winning provider of licensed, real money esports betting, sports betting and casino games, announces another record month of operations ending February 28, 2023.

Last month, the Company continued its rapid growth, achieving CAD$2.8 million in Global Betting Handle, a new monthly record following CAD$1.6 million in January – despite February being a short month. Monthly revenue also grew 110%, mainly driven by focusing on player margins, where the average revenue per customer increased by 127% MoM.

In just six months, the Company’s registered player base now stands at 350,000. With this initial critical mass of players on the platform, Real Luck Group will continue to focus on driving player value, as indicated in the January update and demonstrated throughout February. Global Betting Handle and player revenue will continue to be the key performance measurables in B2C growth.

“The continued growth in our player acquisition efforts is a testament to our team’s focus on the strategy we outlined in August 2022. In a short timespan, our team has also built an extremely scalable technology platform. As a result, we are excited to announce that several top-tier betting operators are now exploring our proprietary B2B live micro-betting product. We are developing this in-house, and this new vertical will add lucrative new revenue streams to our existing operations; given this, our business model will evolve. We look forward to sharing our progress,” said Real Luck Group CEO Thomas Rosander.

• This reply was modified 1 year, 1 month ago by Nick Hargrave.
• This reply was modified 1 year, 1 month ago by Nick Hargrave.

[Nick Hargrave]

The company continues to execute strongly and look well on track to meet their breakeven target of Q2 23. January update just released:

Real Luck Group Announces Continued Growth in 2023
Total First Time Depositing Players Grew ~200% In January.
Registered Player Base Now Exceeds 250,000

CALGARY, AB and Isle of Man, Feb. 7, 2023 /CNW/ – Real Luck Group Ltd. (TSX.V: LUCK) (OTCQB: LUKEF) (the “Company”) and its subsidiary companies doing business as “Luckbox” (the “Group”), an award-winning provider of licensed, real money esports betting, sports betting and casino games, announces that it’s January operating metrics following December’s metrics, which exceeded objectives.

In January, the Company achieved over CAD$1.6 million in Global Betting Handle. Additionally, monthly revenue grew 110% and Total First Time Depositing Players grew by 182% since December.

After six months of player acquisition efforts, our registered player base now exceeds 250,000. Our next focus is twofold; firstly, we plan to direct our efforts on ramping player value, with Total Player Deposits and Global Betting Handle being key performance measurables. Secondly, we are building a proprietary technology stack which we believe will be transformational for our industry. This product is an ultrafast, live micro-betting platform that we believe will allow us to increase revenue growth and margins from our B2C operations. It also positions us to expand into the lucrative B2B market with unique and proprietary products. We expect to provide more details on this new initiative in the coming weeks and months.

“This strong month-to-month growth was expected, and is simply a result of the collective experience that our team has acquired from driving growth at prior companies. We are currently only harnessing about a quarter of the player acquisition channels we have at our disposal, and are confident about our growth trajectory and ability to continue delivering favorable results. Independently from our B2C efforts, we are also looking ahead towards our planned B2B products. This would represent a completely new and additional line of business for Luckbox. We are eager to share more details about this new growth initiative later this year.” said Real Luck Group CEO Thomas Rosander.

[Nick Hargrave]

Continued bullish commentary from the CEO on prospects for the B2B product due to be launched in H2 23

[Nick Hargrave]

The company are presenting at an investor conference in the coming days (20-22 Jan 23) and have released a new investor presentation:

https://static1.squarespace.com/static/5fbcd5d71156434d00d23d0f/t/63c90ec4013c481309af2fbb/1674120905269/AlphaNorth+CEM+deck+Jan+2023.pdf

[Nick Hargrave]

A highly confident message form the CEO!

https://www.proactiveinvestors.ca/companies/news/1003503/real-luck-group-really-smashed-it-in-q4-2022-1003503

[Nick Hargrave]

Just received the following note from the CEO, highlighting that they remain on course for breakeven by end Q2 23, and disclosing that they need c.C$12m of betting hendle to achieve breakeven, and are 25% of the way there in just under 3 months of active player acquisition. This continues to be a highly interesting ‘sleeper’ investment idea

Dear Luckbox partners and shareholders,

As we look forward into 2023, I want to extend my gratitude for your continued support for Real Luck Group. I also want to provide a year-end summary of the progress the company made in 2022 and share our 2023 goals.

Q4 Results and 2022 End of Year

We ended 2022 in a record-breaking month, with December’s results delivering on our 2022 promises and showing our 2023 potential. We always maintained we wouldn’t go to market until our product and platform were ready, and in August last year, thanks to a huge effort from the whole team, we reached that point; this enabled us to launch our player acquisition in earnest in October. We went from a virtual ‘standing start’ in Q3 2022 to over CAD$3 million in Global Betting Handle by the end of Q4. Not only is this encouraging, and a promising glimpse of our future growth potential, we also did all this despite turbulent market conditions and headwinds – further proof that this industry, and our approach, are capable of growth regardless of macroeconomic volatility, recession fears, global crises, and other negative headlines.

In the last three months, over two million bets were accepted and placed on the Luckbox platform and our casino portfolio grew to over 900 games. We also partnered with some of the biggest talent across the esports ecosystem, including Thunder Awaken; they made history for the South America region in DOTA 2’s most prolific tournament ‘The International’ and took our brand to Singapore where more than 1.7 million people watched the games.

Regarding our 2022 Key Performance Indicators (“KPIs”), our monthly revenue has grown 120% and our Total Player Deposits grew by a huge 420% since we first shared them in August. Since then, we have also disclosed even more KPIs with you such as our Global Betting Handle, First Time Depositors (“FTDs”) and Real Money Players (“RMPs). Moving forward we will continue to report these important operating statistics to help measure our progress.

2023

As we look forward into 2023, I want to provide more detail on our strategic direction. We have significantly improved the player experience of our platform, driven successful customer acquisition efforts in multiple regions globally, and delivered in all our three verticals (esports, online casino and sporting betting). This has been made possible by successfully overhauling our proprietary tech stack and as a result, we are now able to continue to apply our team’s online gaming expertise towards the continued scaling of our business in 2023. We believe 2023 will be the year that we will expand further and make an impact on our growing industry.

From a financial perspective, we’re already generating around 25% of the Global Betting Handle that we need to in order to be breakeven; that, in relation to the fact that we have only activated 20% of our player acquisition channels, gives us a high degree of confidence that we are on the right trajectory to attain profitability by the end of Q2 2023.

This year we’ll also be focusing on the development of our proprietary betting technology that will help position us as a true market leader, but also open up new global opportunities. I hope to be able to share more news soon, but this development will enable us to create a new B2B vertical within Real Luck Group and embed our revolutionary new products into the largest gaming and betting operators around the world.

Closing Remarks

In closing, we have been encouraged by our rapid player and handle growth in Q4 and reassured by our continued upward trajectory despite the current negative economic environment. I am confident that 2023 will see us take more steps towards becoming a truly successful global and recognized brand.

On behalf of all of us at Real Luck Group, I wish you and your families a lot of LUCK in 2023.

Yours,

Thomas Rosander, Chief Executive Officer

[Nick Hargrave]

https://www.realluckgroup.com/news/real-luck-group-announces-multiple-areas-of-record-breaking-growth

The early growth success continues apace

[Nick Hargrave]

https://www.realluckgroup.com/news/real-luck-group-ltd-signs-loi-to-acquire-leading-asian-focused-igaming-platform-and-reports-q3-2022-financial-results

A potentially interesting acquisition, but without further details it’s impossible to judge. Not a great fan of issuing shares at these levels but at least nearly all of them are subject to hitting 2-3 year targets and its important cash reserves remain intact. Further positive trading momentum as well, but again details are still too thin to judge the financial impact

[Nick Hargrave]

Progress continues in November, though we still await absolute numbers rather than high growth rates from a low base

https://www.prnewswire.com/news-releases/real-luck-group-announces-record-player-and-handle-growth-in-november-301682166.html

[Nick Hargrave]

The below was just sent to shareholders / subscribers which highlights again our positive view of the kind of management at the helm here, alongside continued momentum in the business

Dear Luckbox partners and shareholders,

Recent Player Acquisition Successes Building On October’s Momentum

I am encouraged by our latest player acquisition efforts. As previously reported, Player Registrations for the first 26 days of October hit 24,411 which led to a monthly record of 25,000+ Player Registrations in October, and I am pleased to say, we continue to show that solid growth. In the ten-day period since the update in our October 27, 2022 press release, we have seen our player base increase from both our strong LATAM presence and other global markets.

Not only can we report record registration numbers, but Global Active players grew 16 fold from August and stakes placed across all our gaming verticals grew 252% compared to September. These results evidence our September and October success and demonstrate that we are executing on our growth plan of attaining positive monthly EBITDA in H1 2023.

We have, during the last three months, been more efficient in driving traffic than predicted. This is a clear indication that our growth strategy is spot on. In the coming months, we will emphasize maximizing the lifetime value of these players by enhancing our product, delivering rich retention campaigns and engaging with our player base more than ever before. We will also begin to scale our efforts in key global markets that we expect will deliver early stage revenue trends. These include further expansion into Latin America, Europe, and APAC.

Proposal By A Shareholder

As you are likely aware, a letter from an activist shareholder was recently published, which was critical of results the company has achieved to date. The activist has proposed a “take-under” of our company (i.e. an offer that we determined to be below our net cash value) and, alternatively, a wind-up of the company. We completely reject the interpretation of the status of our company as outlined in the letter, and see it as an opportunistic “grab” for Luckbox’s cash. Investors can read our response to that letter here.

I also want to take this opportunity to provide investors additional perspective regarding our initial strategy and progress. I am convinced that to build a great business you need a great product. Anyone can spend marketing dollars but to spend it responsibly, with good return, is much more difficult and that’s where the quality of the product makes a difference. That is why we decided to significantly improve the player focused platform before we engaged in any meaningful customer acquisition. Anything else would have been irresponsible and a waste of money. This has indeed taken longer than initially expected, but not too long. Our monthly cash burn is relatively small in comparison with our listed peers and it is these substantial improvements that made October a record month. November looks equally encouraging and we couldn’t be more excited to be a rapidly growing company, with a great product, great team and huge global market to attain.

In regards to our share price, the public markets have been on a downward trend since the favourable market environment in H1 2021. Many of our competitors have raised money and undertaken acquisitions during this period, still their share prices have not performed meaningfully better than ours. For example, year-to-date, our stock is down around 56% and our closest Canadian listed peers are down on average around 67% during that same period.

Luckbox’s Strategy – Focussing On What We Can Control

We have focused on what we can control; our cash burn has been less than what we budgeted per quarter in every quarter since I took on the CEO role. More importantly, we have a cash runway that is expected to bring us to positive monthly EBITDA in H1 2023, as we highlighted at our AGM in August. We are in this position of financial strength to drive our business forward, in large part because we did not invest in expensive ‘investor outreach’ campaigns to attempt to drive our share price as some of our peers did to little or no effect.

Our vision and passion as a company is to redefine the betting experience that will deliver long-term value to the business and shareholders. This strategy has meant a careful approach to provide the resources and time to develop these products.

Our cash preservation discipline, and more importantly our cash position, has not gone unnoticed. Given the lack of capital funding available for companies in our space, we have been approached multiple times with acquisition or asset purchase overtures which we believe would be completely destructive to shareholder value. We believe this recent activist shareholder letter is the latest attempt to gain access to the company’s cash. We remain committed to creating shareholder value at Luckbox by driving a strong underlying business.

In closing, I want to reiterate that unlike many other companies targeting esports, including some that I met recently at Global Gaming Expo, Real Luck Group’s balance sheet is strong, giving us ample room to execute on our strategy. On behalf of the company, I want to thank you for your continued support and interest.

[Author]

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