I bought UTV Media back in December 2011 as one of the few small-cap companies in my portfolio. This investment has turned out to be very successful, although most of that is due to luck, which I’ll explain shortly.

The short version of this case study is that I owned UTV Media for about 7 months and it returned about 40% in capital gains, and there’s a dividend of four or five percent coming shortly. The result is down to luck because most of the gains are from the share price going up, which is a largely random event. However, picking the right sort of investment does help.

A quantitative screen

I use a quantitative process to start with, in order to reduce the vast number of potential companies (over 1,000 I think on the UK markets) down to something manageable.

In this case I rank companies by 10 year growth, the 10 year PE ratio (price to 10 year average earnings), and the current dividend yield.

Back in December, UTV media ranked highly for the combination of those three factors. The growth rate was around 5%, PE10 was very low at 5.3 and the yield was 4.6%.

The main reason that UTV appeared attractive was the exceptionally low PE10 rating. At the time the market average was nearer 12 to 14, so 5 really was very low. If those historic earnings turned out to be sustainable going forwards, then UTV shares were likely to head upwards at some point in the future.

A qualitative selection

Once I’ve homed in on a company using the quantitative stage, I like to run through a checklist so that I can get a better feel for what the company is all about. This helps me to sleep better after I’ve bought the shares, and it also stops me buying shares in companies that look good by the numbers, but in reality turn out to be cheap rubbish rather than quality bargains.

You can see my original analysis, word for word, below:

History

UTV Media is primarily a TV and Radio broadcast group. It was set up in 1959 to be the ITV license holder for Ireland and has held that license ever since. As well as TV they’re also the radio market leader in Ireland with a steak in over 20 radio stations throughout Ireland and the UK including TalkSPORT, the leading commercial…

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