We have increased our estimates on Bank of Cyprus by c.10% over our forecast period (2026-28E) following the solid 1H26 performance. The beat in the numbers were driven by better-than-expected loan growth, higher rates and lower provisions. We remain bullish on the shares are raise our Price Target (PT) to EUR 13.0/share from EUR 11.5/share previously. Bank of Cyprus remains a defensive banking play in view of the resilient local macro, superior capital (with the CET1 ratio in 1H26 at 20.5%) and best-in-class dividend yields in excess of 9.0% per annum.
Another upgrade in our numbers: We have increased our reported net profit estimates by 14% in 2026E, 8% in 2027E and 7% in 2028E. The upgrade is driven from NII in view of strong credit expansion (5% YTD in 1H26), the tailwinds from increasing ECB rates and a higher fixed income portfolio. As a result, we now expect NII in 2026E to reach EUR 763m vs. our previous EUR 723m estimate and higher than the upgraded management guidance (c.EUR 750m from c.EUR 720m previously). Cost of risk has also been a positive surprise, and we have incorporated in our 2026E numbers the provision reversals recorded in 1H26. The underlying COR stands at 28bps and remains below the guidance range of 40-50bps.
Shares remain undervalued: Bank of Cyprus trades on a P/E of 9.8x on 2026E, a c.18% discount to regional peers. We think the discount should close on the back of a large excess capital and superior distribution yields. We have updated our PT to EUR 13.0/share from EUR 11.5 previously driven by the increase in our estimates and higher multiples for our peer group. In our PT the shares would trade (on 2026E) at 12x P/E, 1.9x P/TBV and a 7.5% dividend yield.
