** Jefferies says it remains "selectively positive" on the European gaming sector, as it expects 2026 mood to be dominated by U.S. prediction markets and UK tax ramifications

** The emergence of prediction markets is an incremental profit opportunity and a potential accelerator for online sports betting legislation in the U.S., it says

** Meanwhile, it expects recent tax hikes in Britain to cause a material market restructuring, leading to greater share concentration and risks of black market leakage

** It downgrades Kambi KAMBI.ST to "hold" saying the valuation is "low but lacking catalysts", and pointing to headwinds from customer transitions and slower growth in Brazil

** Flutter Entertainment FLTR.L remains Jefferies' top pick, with its prediction market entry presenting an incremental mid-term upside opportunity

** The broker also lists Lottomatica LTMC.MI as a top pick, citing its number one position in Italy and potential for a re-rating as it skews towards online growth

** Cirsa CIRSA.MC completes the top picks, with Jefferies highlighting its attractive valuation and "unique, fully regulated platform with consistent growth"

** It maintains "buy" on Entain ENT.L, Intralot INLOT.AT and Hacksaw HACK.ST, and "hold" on Better Collective BETCO.ST, Evolution EVOG.ST and Playtech PTEC.L

(Reporting by Marta Frackowiak)

((marta.frackowiak@thomsonreuters.com))