Centrica's profits near record levels after big freeze

SCOTTISH Gas owner Centrica is expected to report a rise to near-record profits at its residential business this week as households cranked up the heating to beat the December cold.

It became the first of the "big six" UK energy companies to lower gas prices recently with a 7 per cent cut for its eight million customers. But operating profits notched up by the residential arm are still expected to hit 554m – up from 379m in 2008.

While Scottish and British Gas will also have gained from last month's snow, which falls outside the period of the results, the figures for the group as a whole will show operating profits down 7 per cent to 1.82bn in 2009.

This is because lower wholesale gas prices have a bigger downward effect on production profits than the uplift given by the residential business.

Analysts suggest Scottish and British Gas could put further pressure on rivals later this year with more price cuts after securing the company's current position as the cheapest in the market.

Morgan Stanley's Bobby Chada said: "On our forecasts, even after the 7 per cent price cut, it will make a good margin in 2010, probably in excess of 7 per cent.

"Given the weak commodity price environment, Centrica will have scope for further tariff cuts later in the year and still meet consensus expectations."

Further price cuts will give its reputation a welcome boost, while other suppliers have less scope to cut due to bigger hedging positions built by buying gas far in advance when wholesale prices were much higher.

Chada added that Centrica would continue to benefit. "It puts pressure on rivals as it keeps Centrica as the cheapest supplier and should allow it to win back more market share."