Panmure Gordon has highlighted ASOS and Dunelm as its 'conviction buys' in the UK retail sector ahead of the critical Christmas reporting season in the next few weeks.

General retail was the best-performing FTSE sector in 2012 according to prices at December 27th, the broker said.

Panmure said: "As a result, the sell-side is more polarised than ever on individual stocks. Analysis from our economic advisors suggests that it is too early to sell out of the sector completely however, and we remain conviction buyers of mid cap names ASOS and Dunelm."

While consumer data was "mixed at best" during 2012, the broker said that this has not held back the retail sector's top-tier performance.

"Though there have been some casualties in the retail space, ASOS, NBrown, Debenhams, Dunelm and Ted Baker shares have all increased by more than 55% year to date."

As for the data from the all-important Christmas season, the broker said: "early indications are that December was only 'ok' with the CBI survey delivering a +19 result vs. expectations from retailers of +25". BDO weekly data has been weak for fashion but strong in homewares in recent weeks, however consumer confidence slumped in both November and December.

Next, labelled 'hold', will be the first to update on trading on January 3rd, while most other retailers will report next week and the week after.

Panmure concluded by saying: "Our top large cap general retail sector pick is category killer and number one UK homewares market share holder Dunelm [rated 'buy']. Our model suggests that Dunelm could return another £80m-90m to shareholders by FY2016E."

ASOS ('buy') saw its target price raised from 2,875p to 3,050p. Supergroup also remains a 'buy'. In contrast, Panmure has singled out Mothercare as its only 'sell' "ahead of what we expect will be a tough Q3 update".

General retail stocks were trading an average 0.87% higher on Wednesday morning.

BC

Related share prices
Brown (N.) Group (BWNG) share price
Mothercare (MTC) share price
ASOS (ASC) share price
Dunelm Group (DNLM) share price
Debenhams (DEB) share price
Ted Baker (TED) share price