New Jersey Resources Corp.
Please see disclaimer at bottom of this document

October 25, 2005 41.84                                      Discussions with Investor Relations

1. Distributor of Natural Gas. NJR makes no money on the commodity itself. The money is made via the transportation of the gas. NJR carries an under recovery on their balance sheet. Then NJR goes to regulators for recovery. There will be upwards of a year lag on this. Perhaps I don’t understand the industry, but it seems to me that the quick rise in natural gas from January 1, 2005 till October 25, 2005 is about 32%, will be a difficult period for current earnings. It was interesting to hear Investor Relations mention that they will be able to deal with this, by managing their business. It just seems odd to me, yet I don’t really fully understand the entire business model.

2. Buys from several suppliers. These suppliers are not public information per NJR.

3. I asked about increase share count, see table below on part 5, on October 6, 2005. The increase is thought to be from stock options. I did not ask where they transport all the diluted stock from;-)

4. On October 6 note, I incorrectly mentioned commodity exposure. NJR is a transporter only, hence no commodity exposure.

October 6, 2005 43.68

1. It certainly seems a bit overpriced at these levels. Yet, I like the commodity exposure to Natural Gas. I don’t see buying at these levels. I would prefer a higher dividend, with a similar payout ratio to under 60%. Hence with projected dividends of say $1.65, I would like a purchase price of $36ish per share. I don’t intend to sell at this point, even though my current holdings would drop by 16+% if price was to hit the $36. level. Of course growth rates and economic climates can change in an adverse fashion.

Growth Rate 5.00%
Earnings Per Share 2.65
Projected EPS Year 2 2.75
Projected EPS Year 3 2.89
Projected EPS Year 4 3.03
Projected EPS Year 5 3.18
Dividends Per Share 1.36
Dividend Yield 3.11%
Dividend Pay Out Ratio Year 1 51.32%
Dividend Pay Out Ratio Year 2 49.45%
P/E Ratio Current (2005) 16.48
P/E Ratio Year 2 15.88
P/E Ratio Year 3 15.13
P/E Ratio Year 4 14.41
P/E Ratio Year 5 13.72
PEG Ratio (Current) 3.3
PEG Ratio Year 2 3.18
PEG Ratio Year 3 3.03
PEG Ratio Year 4 2.88
PEG Ratio Year 5 2.74
Intrinsic Value (current) 37.84
Price / Intrinsic Value(current) 115.42%
Intrinsic Value Year 2 39.27
Price / Intrinsic Value Year 2 111.22%
Intrinsic Value Year 3 41.24
Intrinsic Value Year 4 43.30
Intrinsic Value Year 5 45.46

2. Price to Sales is <0.50. A similar ratio as to when we bought in 2003. Keep in mind we bought at around $32 per share.

3. Net Income is increasing at a faster pace as compared to when we first bought. We had invested based on rough 2005 eps projected of $2.62. Hopefully, eps will be in the $2.70 range +/- $.05. I had originally projected F2006 eps to be $2.83. I do not expect that we will hit that in 2006, as we are projecting $2.75.

4. If dividend payout ratio was increased to 60% on F2006 projected earnings of $2.75, the dividend would be $1.65. Based on the current price of 43.68, the yield would be 3.78%. No great shakes there.

5. Watch insider activity. I am concerned with the recent sales. Yet, insiders still own a bit of shares (see table below). According to VL, insiders own 8% of the common. I indicated 117,180 shares owned in table below, and that was merely a selection of larger holders. Yahoo finance shows ownership at < 1%.

Forget Yahoo and Value Line. Here is the true insider ownership story:

According to the DEF14A filed on December 20, 2004, the direct ownership is 1,439,300 shares, and indirect is 4,091 shares. Total outstanding is around 28M. Hence ownership percentage of insiders is 5% ( 1.4/28).

Ownership Table constructed from Def 14A is :

Nina Aversano 18,594 Direct
Lawrence R. Codey 13,411 Direct
Laurence M. Downes 529,514 Direct
2,904 Indirect
R. Barbara Gitenstein 1,430 Direct
Oleta J. Harden. 103,104 Direct
59 Indirect
Alfred C. Koeppe 1,401 Direct
Dorothy K. Light 28,664 Direct
72 Indirect
Glenn C. Lockwood 155,811 Direct
Joseph P. Shields 82,263 Direct
19 Indirect
J. Terry Strange 3,936 Direct
David A. Trice 1,518 Direct
Wayne K. Tarney 74,015 Direct
William H. Turner 12,175 Direct
Gary W. Wolf 21,796 Direct
George R. Zoffinger 32,617 Direct
450 Indirect(3)
300 Indirect
All Directors and Executive Officers as a Group…………. 1,439,300 Direct
4,091 Indirect

All Ownership from Def 14A for several years:

Date Reported Shares Owned
December 18, 2000 635,309
December 19, 2001 904,622
January 23, 2003 1,118,345
December 19, 2003 1,095,046
December 20, 2004 1,439,300

6. Officer’s compensation seems reasonable. All officers are making under $1M annual.

7. Option overhang is 838,872 shares. This equates to about 3% of common stock.

More Notes:

Yield is 3.10%, dividend of 1.36. According to VL 091605, payout ratio is expected to be 51%. Payout ratio has been higher, historically in 60 to 70% range. VL calls it B++ financial strength.

Utility Forecaster in Oct 2005 says interest expense has increased 34.2%. Claims there has been insider buying. Rates it a hold.

Here are some insider holdings as of 10/03/05. I looked at many of the forms 4 and do not see where at all insiders have been buying as UTE Forecaster mentions.

Downes CB 54,616
Ellis SR VP 1,125
Harden SEC 25,276
Lockwood CFO 22,615
Shields SR VP 13,548

Ratings on debt are:

Rating Source Date Rating
Duff & Phelps 10/11/95 A
Moody’s 10/11/95 A2
Standard & Poor’s 10/11/95 A
Duff & Phelps 06/01/00 NR
Standard & Poor’s 09/03/03 NR
Moody’s 09/04/03 Aa3

No data was available on the pricing of the bonds.

Company guided eps for F2005 to be $2.65 to $2.75 on July 27, 2005. This does not include a sale of real estate gain of $0.22.

Company increased its ownership of Iroquois pipeline to 5.53% from 3.28%.

Company has bought back 547,000 shares so far in 2005.

Shares Outstanding :

Year Shares
2000 26.39
2001 26.66
2002 27.67
2003 27.23
2004 27.74
June 30, 2005 28,079

9 months ended eps when including stock option compensation is 2.96. This is reduced from 2.97. Hence, no apparent negative affect.

June 20, 2005

Yield is 2.89 % , dividend of 1.36 with price at 47.00. Dividend payout ratio is at 46.00 %. Payout ratio has been higher, historically in 60 to 70% range. Value Line in 6/17/05 issue, discusses the likelihood of a growing dividend. Growth being fueled by unregulated businesses. Above average safety, make it “of interest to conservative investors”.

Utility Forecaster says A+/ outlook stable, rates it a hold.

Morningstar rates it a hold, yet says that consistency and growth gives income oriented investors something to look for, while looking for risk aversion.

Argus wrote on 4/1/05, “Our long-term EPS growth rate for New Jersey Resources is 5% and our financial strength rating for the company is High.”

Insiders own less than 1%.

On 4/27/05 NJR discussed the following:

a. 2005 eps to be $2.65 – $2.75. This guidance excludes sale of real estate gain of $0.22 and early retirement charge of $0.05.

b. Share repurchase plan has brought in 2.2M shares, for an investment of about $81M.

According to a report issued by A.G. Edwards during April 2005, they mentioned: high quality name, good management, yet a “hold” for conservative investors.

January 7, 2003

Started review of NJR. Yield is 3.80 % , dividend of 1.20 with price at 32.60. Dividend payout ratio is at 57.00 %. History shows that payout ratio is below current levels, generally in the mid 60’s to high 70’s. Historically NJR has had a greater div %, althought a higher payout % as well. We need to monitor if low payout is because of higher price or lower payout ratio. I suspect it is because of ratio, since NJR is trading at same multiple of cash flow for the last 11 years. Cap spending has been constant to low lately. PE ratio is on high side at 14.80, range has been 12 to 15. S&P bond rating is A. Nice presentation given in beginning of December Long Term Debt ratio is at 52.0 %, yet VL projects 50.0 in 2003. VL gives it a 2 Safety Rating and NJR gives it an A.


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