This one is tricky, even for Faroese people.
You are correct about the individual words.
The word evna being in genitive plural is because of the de facto death of the genitive (note, that 'til' takes the accusative in the 1st line: not *til Eiriks jals) hard to undertand, if you don't know a bit of grammar. It's derived from the neuter noun evni.
This word is quite versatile: Usually it means ability, but it can also mean potential, topic, power, drug etc.
I'd interpret this usage as either ability or potential. Eirikur Jallur was "beautiful to his potential/ability" which would mean that he had very good abilities, which the latter two lines support: He's on his way to avenge his father's death, and to do that, you definitely needed special abilities.
Gløgt er gestsins eyga. (Føroyskt orðafelli)
Wise is the stranger's eye. (Faroese saying)
L'occhio dell'ospite è acuto. (Proverbio faroico)
Hosťovo oko je múdre. (Faerské uslovie)
Fluent: Faroese, Danish, English, German
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