Sonic Healthcare Limited and FlexiGroup Limited: 2 stocks strengthening industry positions

Special working relationships with large service providers and retailers maintain growth models.

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These two companies reported well this season and have more room to grow with the business strategies they are setting forth.

Sonic Healthcare Limited (ASX: SHL), the international medical diagnostics company, has kept up its rise in half-year profits since 2010 with a 15.4% gain in underlying net profit to $179.7 million for H1 2014. The standout reasons for the increase were the cost-out program in the US, where about 22% of total revenue comes from, and the 7% organic growth achieved in the Australia segment.

It holds the number one position in market share of pathology services in Australia at about 41%, followed by Primary Health Care Limited (ASX: PRY), which hit a new 52-week high of $17.50 last week.

FlexiGroup Limited (ASX: FXL) has strengthened its position in vendor finance programs that customers can use to purchase household goods, appliances and electronics by earlier acquiring the Australia and New Zealand Rentsmart business.

This was a competitor for vendor finance working with retailers like Dick Smith Holdings Ltd (ASX: DSH) and JB Hi-Fi Limited (ASX: JBH). FlexiGroup’s Flexirent service was already in other big name retailers like Harvey Norman Limited (ASX: HVN) and Domayne. In the second half of FY2014, the integration of the Rentsmart business will be a top priority.

For the half-year to December, it raised its revenue by 9.5% to $151.5 million and underlying net profit was up about 20% from $32.6 million to $39 million.

It plans to roll out a multi-branded online cards platform in conjunction with its Lombard Finance and Once Credit business which it recently acquired. This will involve store-branded finance or Visa cards that Lombard currently offers.

Retail store vendor finance programs usually only offer one option for customers to use, so that is FlexiGroup’s strong point. By creating working relationships with major retailers, it raises potential business and blocks other service providers from entering directly.

Foolish takeaway

Companies like these offer specialised services that are connected with large service providers like hospitals and healthcare centres or retailers who own big market share in their respective sub-industries. That helps keep business up and growing once they can establish their dominant position.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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