We use a combined dividend discount model and warranted equity valuation approach based on a 2026E terminal value assuming 2% long-term growth, a long-term sustainable RoTE adjusted for excess capital (based on c.14.0% target CET1), and a cost of equity of c.12% (based on a CAPM approach). We then discount back to derive our target price of EUR 6.80.

There are still considerable uncertainties in the Irish market, particularly a lack of visibility around regulations, future levels of arrears, political risk, and the state of the economy. The main risks to our target price include: AIB is geared to the Irish economy (high Irish market share), and could therefore underperform/outperform should the Irish economy recover slower/faster than we currently expect. This would increase/reduce asset quality concerns and raise/lower the risk premium (discount) we use to value AIB. If the competitive and regulatory environments are more or less benign than we currently expect, this could cause the share price to perform better or worse than our target price.