UBS sees further upside for Eurobank after outlook upgrade

UBS has raised its price target for Eurobank to €5.10 from €4.90, maintaining its ‘buy’ recommendation after the lender delivered stronger-than-expected second-quarter results and upgraded its outlook, with Cyprus continuing to play a significant role in the group’s profitability. The investment bank said the revised target implies upside potential of approximately 14.6 per cent, while an estimated dividend yield of 6.1 per cent brings the total prospective return to 20.7 per cent. The upgrade follows Eurobank’s first-half results announced last week, when the group reported net profit of €738 million, or €776 million on an adjusted basis, and raised its guidance for the full year after outperforming expectations. The group’s operations in Cyprus contributed €231 million in adjusted net profit during the first six months of the year, accounting for a substantial share of the €361 million generated by its international operations, which represented 46.5 per cent of overall group profitability. UBS described Eurobank as an attractive regional growth story, saying its second-quarter performance exceeded market consensus forecasts. However, the investment bank also said that much of management’s upgraded guidance for 2026 has already been reflected in the share price following the stock’s strong performance. The broker made only limited revisions to its forecasts, projecting adjusted earnings per share of €0.43 in 2026, representing annual growth of 14 per cent, comfortably above the bank’s own target of growth exceeding 10 per cent. Adjusted net profit is forecast to reach €1.57 billion in 2026, rising to €1.74 billion in 2027 and €1.83 billion in 2028. UBS attached particular importance to the group’s medium-term business plan, forecasting average annual earnings per share growth of 12.4 per cent between 2025 and 2028, compared with the approximately 10 per cent growth envisaged by management. The investment bank said this leaves scope for Eurobank to raise its medium-term financial targets in the future. For 2026, UBS expects core operating profit of around €2.01 billion, broadly matching management’s recently upgraded guidance of approximately €2 billion, compared with its previous target of €1.90 billion. Total income is projected to increase by 11 per cent to €3.75 billion, supported by a 9 per cent rise in net interest income and 15 per cent growth in fee income. According to UBS, one of the group’s key strengths remains its geographical diversification, with south-eastern Europe continuing to provide an increasingly important contribution to profitability. The investment bank said profit from operations in south-eastern Europe increased by 19 per cent quarter on quarter during the second quarter, supported by higher income, lower costs and a normalisation in credit losses following elevated levels in the opening quarter of the year. It added that the region’s net interest margin reached 2.82 per cent, comfortably above the 2.23 per cent recorded in Greece, while also increasing by five basis points from the previous quarter. UBS highlighted Bulgaria as a particularly strong market, where lending expanded by 16.7 per cent year on year, with retail banking accounting for 58 per cent of the loan portfolio, compared with 37 per cent in Cyprus and approximately 25 per cent in Greece. The broker also expressed confidence in the outlook for fee income, which increased by 13 per cent during the first half of 2026, exceeding the bank’s original plans. It said the stronger performance reflected higher lending-related fees and continued expansion in assets under management. UBS also expects the acquisition of Eurolife to be completed towards the end of the third quarter, with the transaction expected to begin contributing to fee income from the fourth quarter. For the full year, it forecasts fee income growth of 14.6 per cent. Despite the substantial re-rating of Eurobank’s shares, UBS argued that the valuation remains attractive. The investment bank said the lender is currently trading on an estimated 2027 price-to-earnings ratio of nine times, compared with 10.3 times for European banks, representing a discount of around 11 per cent. UBS also expects the group to sustain a return on tangible equity of around 18 per cent over the medium term while maintaining a Common Equity Tier 1 ratio of approximately 14 per cent. Its revised price target is based on assumptions of a sustainable return on tangible equity of 18.5 per cent, a cost of equity of 11.2 per cent and a long-term growth rate of 3 per cent. Last week’s results also highlighted the resilience of the Cypriot economy despite heightened geopolitical uncertainty in the region. “Despite persistent geopolitical uncertainty and renewed tensions in the Middle East, the economies of our core markets have remained on a solid growth trajectory,” said Eurobank chief executive Fokion Karavias. “In Cyprus and Bulgaria, economic sentiment and growth remain also robust,” Karavias added. The lender said Cyprus’ economy expanded by 3 per cent in the first quarter of 2026, slowing from 4.3 per cent in the final quarter of 2025, while pointing to European Commission forecasts of 2.3 per cent growth in 2026 and 2.7 per cent in 2027. It also highlighted continued strength in the island’s property market, with real estate activity increasing by 27.2 per cent in June and 14.6 per cent during the first half of the year, driven primarily by foreign buyers, whose activity rose by 22.5 per cent, compared with a 9.6 per cent increase among domestic purchasers. Eurobank additionally said tourist arrivals weakened in March and April before stabilising in May and June, signalling a recovery ahead of the peak summer season. “The strength of the underlying trends gives us confidence that we will exceed our full-year targets,” Karavias said.