Australian Finance Group (ASX:AFG) can make "significant" earnings leverage by growing its direct lending book from AU$5.5 billion to AU$9 billion over the next number of years, said Euroz Hartleys in a Tuesday note.

The research firm believes that the 119 basis point increase in net interest margin in the second half of the year and the rise in the residential loan book from AU$200 billion to AU$211 billion over the year support this outlook, showing that expanding direct lending is a natural outcome of the overall growth in lending volumes.

The bank also noted that in addition to direct lending, the company generates earnings out of the trail book, upfront commissions, white label products, commercial, personal and assets lending, and subscription income.

Euroz Hartleys has maintained its buy rating on Australian Finance Group while upping its price target to AU$3.06 from AU$2.52.

The company's shares fell almost 2% in recent Tuesday trade.