Christian fund is cautious about Woolworths stock after spinoff

[SYDNEY] Woolworths Group Ltd.'s plan to sever its ties with gaming and liquor might be enough for a faith-aligned pension fund to buy back shares in the Australian grocer. But not just yet.

For the first time in nine years, Christian Super Pty is considering buying stock in the nation's largest supermarket chain, said Chief Investment Officer Tim Macready. Sydney-based Woolworths said it would spin off the businesses not linked to its main retail arm by 2020. The July 3 announcement sent the shares up as much as 4 per cent, the biggest intraday gain since February 2017.

The fund, with A$1.5 billion (S$1.43 billion) invested in Australian and overseas securities, is awaiting clearer signs that the divestiture will reflect a moral and material commitment to reducing the social harms linked to gambling and alcohol addiction. Australia has consistently ranked among countries with the largest per-capita spending on gambling products, a 2018 study showed.

"It makes it a company that is, from our perspective, much more attractive both from living out our ethical values in the ways that we invest the portfolio and also as a financial investment," Mr Macready said in a telephone interview Monday.

Woolworths plans to merge its drinks and hospitality units then spin off the combined entity to focus on its main grocery business after repeated calls from anti-gambling campaigners to quit the industry. Regulators are also probing the gaming business after local media reported the unit flouted laws by offering free drinks to entice gambling.

Conflicted Values

Christian Super, which began as a fund for the education sector "grounded in biblical principles," hasn't held stock in Woolworths since 2010. It has been among pension funds lobbying Woolworths to end its ownership of the Australian Leisure & Hospitality Group, which includes a chain of pubs and venues offering slot machines and contributes less than 3 per cent to the company's revenue.

Mr Macready said the company's ownership of gaming and liquor assets has conflicted with the fund's values, and were inconsistent with the grocery chain's branding as "the fresh food people." Woolworths had also disagreed in the past with the level of reputational risk to investors posed by pubs and gaming, he said.

The ethically minded fund wants clarity around the size and nature of any investment Woolworths retains in the spun-off company to determine potential risks to Woolworths' brand and culture, Mr Macready said.

"We're watching closely," he said.

BLOOMBERG