Leeway Research

Research · September 2026 · 8 min

Beyond the Grid: The Hidden Bottlenecks Driving the Next Decade of Industrial Returns

This article was written by Leeway AI.

The assessment is produced by a discussion among several models, with continuous fact-checking and research. Jump to the method

Everyone is looking for the "next European defence" trade. This analysis examines whether certified human hours, carbon tariff walls and restricted assets offer a less crowded way to study industrial returns in the late 2020s.

The Thesis at a Glance

  • The regulatory question: New ESG or regulatory rules may change which sectors investors can own, but permission alone does not create durable earnings.
  • The possible bottleneck: The energy transition may be constrained less by equipment than by certified human labour. This analysis therefore examines companies that provide or organise specialised technical work.
  • The carbon question: EU carbon rules (CBAM) may improve the relative position of European basic-material producers, but the timing and effect remain uncertain.
  • The central test: The analysis examines cash-generating assets facing restrictions and asks whether physical constraints could eventually change the rules.

The Portfolio at a Glance

The portfolio comprises 13 companies across 6 building blocks with 10 long and 3 short positions.

The following overview summarizes the strategic building blocks, position directions, and allocated companies for this research theme.

Long

The Execution Layer: Monetising Certified Hours

3 assets

The capital-supply unlock will compound in the layer that owns or manufactures certified human hours, rather than in crowded equipment manufacturers.

Long

The Carbon Tariff Wall

3 assets

Policy-protected European basic materials where CBAM acts as a tariff wall and restores domestic pricing power.

Long

Defence Diffusion and Resilience

2 assets

Move away from crowded prime contractors and into sustainment, testing and dual-use infrastructure.

Long

The Exclusion Cycle

1 assets

Accumulate cash-generative assets at the point of maximum regulatory exclusion, where physical need may eventually force a reversal.

Long

Behind-the-Meter Power

1 assets

Connection scarcity relocates load behind the meter, increasing the relevance of on-site generation and switchgear.

Short

Structural Losers and Funding Shorts

3 assets

These assets face capped returns against uncapped costs, while crowded consensus trades are priced for flawless execution.

The argument

The Illusion of the "Regulatory Unlock"

Every investor is currently asking the same question: What is the next European defence trade?

Between 2022 and 2026, European defence stocks experienced a historic explosion in value. Now, the market is desperately running screens to find the next sector poised for a similar boom. Mostly, they are looking for regulatory unlocks—moments when a previously "taboo" sector is suddenly deemed acceptable by ESG mandates or index rules, triggering a flood of passive ETF money.

This is a trap.

History shows that permission to invest is not a mandate to buy. When a sector is suddenly labeled "investable" by new ESG rules, Wall Street event desks front-run the news. By the time the rule actually changes, the real money has already been made.

The ESG unlock was the amplifier of the defence boom, but it wasn't the engine. The engine was simple: Governments were forced to buy multi-year, non-substitutable military supplies from a physical supply chain that couldn't expand fast enough.

If you want to find the next massive winner, you have to stop looking for regulatory rule changes. You have to look for physical execution bottlenecks.

The Real Bottleneck: Certified Human Hours

The market is obsessing over the equipment needed for the energy transition. But equipment models are fundamentally flawed because they ignore the true gating factor of the 2020s: certified human hours.

Right now, billions of dollars are flowing into the companies that manufacture high-voltage cables, transformers, and grid equipment. But there is a fatal flaw in this trade: Who is going to install it all?

What actually converts a funded government order into a working power grid? It requires high-voltage commissioning engineers, code-certified pressure welders, linesmen, and test-hall technicians.

  • These professions require multi-year certification cycles.
  • The workforce is aging rapidly.
  • Immigration politics heavily restrict the influx of new talent.

You can order a thousand transformers, but you cannot mass-produce a certified welder.

How to trade this:
The analysis therefore compares crowded equipment manufacturers with companies that own or organise "certified hours."
Look for the companies that own or manufacture these certified hours:

  1. Testing, Inspection, and Certification (TIC) firms.
  2. Technical services companies with captive, certified crews.
  3. Factory-built modular substation creators (companies that build the infrastructure in a factory to avoid needing scarce laborers on the actual construction site).

These businesses are currently hidden inside boring service conglomerates, trading at very reasonable valuations (10–15x EBIT). Because there is no flashy "Thematic ETF" for them, they remain cheap.

The Tariff Wall: How Carbon Rules Protect EU Materials

The second major opportunity lies in European basic materials—specifically fertilizer, aluminum, steel, and cement.

For years, European heavy industry has been crushed by high energy costs and cheap imports. But a massive shift is happening via the Carbon Border Adjustment Mechanism (CBAM). In plain English, CBAM is a carbon tariff.

Starting around 2029–31, the EU will aggressively phase out "free" carbon allowances for domestic producers, but simultaneously enforce strict carbon taxes on foreign imports. This turns carbon costs from a pure burden into a protective tariff wall.

Combined with the fact that many European factories permanently closed between 2024 and 2026, the surviving EU producers are about to see a massive restoration of pricing power.

How to trade this:
This is an earnings-only trade. You buy these companies now for their dividends and hold them as their earnings normalize behind this new tariff wall. Plan to exit when their earnings peak. Do not expect their valuation multiples to skyrocket—high energy costs will always keep a ceiling on how expensive these stocks can get.

Where the analysis looks beyond consensus

If you want to own defence and power, you have to move away from the crowded consensus.

A. Defence "Diffusion"

The major defence prime contractors are currently very expensive (trading at 25–40x EBIT). They are highly vulnerable to negative headlines (like a sudden ceasefire) or manufacturing delays. Instead, look at "defence diffusion"—the unglamorous side of the military. This includes sustainment, maintenance (MRO), naval shipyards, counter-drone tech, and test-and-evaluation facilities. These trade at much cheaper valuations and will continue to grow their earnings just by maintaining existing military assets, even if new weapons procurement slows down.

B. Behind-the-Meter Power

The public power grid is politically capped. Governments cannot endlessly raise electricity bills to fund grid expansions without losing elections. Because the main grid is clogged and rationing connections, massive electricity consumers (like AI data centers and heavy industry) are being forced to build their own private power setups—known as "behind-the-meter" power. The winners here are the manufacturers of on-site generators, medium-voltage switchgear, and temporary power solutions.

The Value Traps: What to Avoid

Regulated Network Owners (Utilities)

Avoid them. They face a nightmare scenario: The government caps how much profit they can make, but their costs for equipment and labor are uncapped and rising. To fund their growth, they have to constantly issue new stock, which dilutes the value for existing shareholders.

Tier-1 Grid Equipment Makers

The market loves them right now, but they are a trap. The massive wave of grid expansion planned for 2027–2030 will be severely delayed by the labor shortages mentioned above. When those delays hit, these expensive stocks will drop back down to normal industrial valuations.

The Master Strategy: The "Exclusion Cycle"

Let's examine a repeatable framework for industrial markets this decade. We call it the Exclusion Cycle.

One possible source of mispricing is the regulatory imposition calendar—the schedule of things governments are trying to ban, restrict, or heavily regulate.

Right now, regulators are drafting rules to restrict:

  • PFAS (so-called "forever chemicals")
  • Seabed and hard-rock mining
  • Water usage for AI data centers
  • Autonomous weapon components

When regulators target a sector, the market panics. The assets become "taboo" or "unownable," and their stock prices crash.

But here is the secret: Regulators can write all the rules they want, but they cannot change physical reality. If the modern economy physically needs those chemicals, that copper, or that water to function, the constraint will eventually break. The rules will have to be softened, or the few remaining legal suppliers will gain absolute monopoly pricing power.

The approach: The analysis examines cash-generating assets facing restrictions and tests whether physical constraints could eventually change the rules. That outcome is uncertain, so the position requires a clear time horizon and defined risks.

You cannot time exactly when the regulations will break—but physical reality always wins in the end.

The stock recommendations in this analysis

For this research topic, the discussion among several models selected the following stocks as the more interesting positions. The ratings attached to each company come from Leeway’s general equity analysis and are independent of this topic.

The Business-Rating scores the quality of the business model, independent of the share price. The Market-Fit-Rating tests eighteen fundamental figures for how well the company currently fits the market; a negative reading implies expected negative performance. The Cycle-Rating places the valuation in the stock’s own history: a higher figure means the shares are historically cheaper. The Leeway-Score combines the three in equal parts. How the ratings are calculated

The recommendations since publication

From 2 September 2026 to 4 September 2026: Portfolio+0.2%ACWI+1.1%

The Execution Layer: Monetising Certified Hours

Long

The capital-supply unlock will compound in the layer that owns or manufactures certified human hours, rather than in crowded equipment manufacturers.

SPIE SA

SPIE.PA · Industrials · 7bn EUR

Long

Role in thesis: The purest listed monetiser of certified human hours in Europe.

Valuation context: Its scarce input—certified technical crews—is the exact constraint gating the entire electrification and resilience buildout. Yet, the market currently prices SPIE as an ordinary services roll-up rather than as a provider of bottleneck capacity.

Invalidation risk: The thesis fails if labour costs stay with SPIE rather than being passed to clients, if organic growth slows below mid-single digits, or if tier-1 equipment manufacturers and utilities successfully internalise field crews.

Leeway Rating

General scores - independent of the research topic

Leeway Score30.0/100

  • Business Rating 36.0
  • Market-Fit Rating Trend+333.1
  • Cycle Rating 21.0

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Bureau Veritas

BVI.PA · Industrials · 12bn EUR

Long

Role in thesis: A structurally strong owner of a licensing and human-capacity bottleneck.

Valuation context: The share price has broadly moved sideways for years while earnings have grown, resulting in multiple compression. The demand it serves—infrastructure, defence quality assurance, and carbon verification—is non-discretionary and regulation-driven.

Invalidation risk: The thesis fails if pricing power fails to show in organic growth, or if clients broadly defer certification during a severe capex downturn.

Leeway Rating

General scores - independent of the research topic

Leeway Score36.2/100

  • Business Rating 45.0
  • Market-Fit Rating Trend−132.6
  • Cycle Rating 30.9

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Georg Fischer

GF.SW · Industrials · 5bn CHF

Long

Role in thesis: The prefabrication and water leg of the execution layer, moving scarce labour hours off-site.

Valuation context: It is cheap relative to its end-market growth. It is exposed to two non-discretionary payers—data-centre cooling and water-network renewal—but trades without the thematic premium usually attached to those sectors.

Invalidation risk: The thesis fails if European building and construction activity stays depressed longer than expected, or if the recent Uponor integration disappoints on margins.

Leeway Rating

General scores - independent of the research topic

Leeway Score11.0/100

  •    
  • Market-Fit Rating Trend+70.4
  • Cycle Rating 32.7

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The Carbon Tariff Wall

Long

Policy-protected European basic materials where CBAM acts as a tariff wall and restores domestic pricing power.

Yara International

YAR.OL · Basic Materials · 117bn NOK

Long

Role in thesis: The cleanest listed expression of carbon border adjustment acting as a tariff wall rather than a cost.

Valuation context: The stock has been dead money for years and is cheap on trough earnings. It benefits from a dated legislative schedule that fundamentally improves its relative competitive position through 2029–34. This is an earnings-only trade with a defined exit, not a multiple-expansion story.

Invalidation risk: The thesis fails if CBAM is softened politically, if competitors circumvent the rules via downstream imports, or if European gas costs stay structurally punitive relative to US producers.

Leeway Rating

General scores - independent of the research topic

Leeway Score39.9/100

  • Business Rating 2.0
  • Market-Fit Rating Trend−461.1
  • Cycle Rating 56.4

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Norsk Hydro

NHY.OL · Basic Materials · 185bn NOK

Long

Role in thesis: A policy-protected, EU-demand-facing basic material with a real balance sheet and dividend.

Valuation context: It is cheap on trough earnings and a direct beneficiary of the dated free-allocation phase-out. It provides leverage to electrification volumes without requiring investors to pay an inflated electrification valuation multiple.

Invalidation risk: The thesis fails if the LME aluminium cycle turns down hard, if the free-allocation withdrawal is delayed, or if Chinese and Gulf supply finds routes around the border levy.

Leeway Rating

General scores - independent of the research topic

Leeway Score34.8/100

  • Business Rating 26.0
  • Market-Fit Rating Trend−958.2
  • Cycle Rating 20.1

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WisdomTree Carbon

CARB.LSE

Long

Role in thesis: A direct instrument on the mechanism that makes the protected-materials leg work.

Valuation context: It is the one liquid market that prices EU industrial-policy resolve directly. It also hedges the political-dilution risk inherent in the Yara and Norsk Hydro positions.

Invalidation risk: The thesis fails if the EU dilutes the scheme under competitiveness pressure, if industrial demand falls into recession, or if surplus allowances are released to cap prices. This is a defined-risk satellite position, not a core holding.

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Defence Diffusion and Resilience

Long

Move away from crowded prime contractors and into sustainment, testing and dual-use infrastructure.

QinetiQ Group

QQ.LSE · Industrials · 2bn GBP

Long

Role in thesis: Owns irreplaceable test-and-evaluation capacity; the defence leg that is not priced for linear 2035 delivery.

Valuation context: It trades at a fraction of prime-contractor multiples on assets that cannot be duplicated on any procurement timescale. It sits in the sustainment and services part of the budget, which grows even if new platform procurement slows.

Invalidation risk: The thesis fails if the US business keeps disappointing, if UK budget priorities shift exclusively to platforms, or if management loses credibility.

Leeway Rating

General scores - independent of the research topic

Leeway Score14.8/100

  •    
  • Market-Fit Rating Trend+2216.3
  • Cycle Rating 28.1

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Vossloh

VOS.XETRA · Industrials · 1bn EUR

Long

Role in thesis: A forgotten infrastructure supplier levered to the resilience budget line rather than to the crowded grid theme.

Valuation context: After a decade of sideways price action, it holds an installed base that must be maintained regardless of the macroeconomic cycle. The catalyst is a discrete policy decision—the EU 2028–34 budget agreement on military mobility—rather than a broad market narrative.

Invalidation risk: The thesis fails if the mobility envelope is cut in budget negotiations, or if national rail budgets are raided to fund standard defence procurement.

Leeway Rating

General scores - independent of the research topic

Leeway Score32.0/100

  • Business Rating 33.0
  • Market-Fit Rating Trend+810.8
  • Cycle Rating 52.2

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The Exclusion Cycle

Long

Accumulate cash-generative assets at the point of maximum regulatory exclusion, where physical need may eventually force a reversal.

Daikin Industries

6367.TSE · Industrials · 5706bn JPY

Long

Role in thesis: The “being made unownable” option with cash flow today—a concrete way to hold the exclusion-reversal free option.

Valuation context: The stock has traded sideways-to-down for four years despite structural demand. It sits exactly on the regulatory boundary where maximum exclusion through PFAS restrictions and undeniable physical need from data-centre cooling coincide.

Invalidation risk: The thesis fails if PFAS restrictions prove broader than expected and capture Daikin’s own economics, or if European heat-pump subsidy withdrawals keep that specific segment depressed.

Leeway Rating

General scores - independent of the research topic

Leeway Score38.2/100

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  • Market-Fit Rating 43.4
  • Cycle Rating 71.2

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Behind-the-Meter Power

Long

Connection scarcity relocates load behind the meter, increasing the relevance of on-site generation and switchgear.

Generac Holdings

GNRC.US · Industrials · 11bn USD

Long

Role in thesis: The equipment slot of the payer-backlash pair: connection scarcity relocates load behind the meter.

Valuation context: It has de-rated from its 2021 peak and is largely forgotten. The political path of least resistance on grid affordability—rationing connections—increases demand for on-site dispatchable generation and switchgear.

Invalidation risk: The thesis fails if residential demand keeps deteriorating before the commercial and industrial mix shift takes over, or if hyperscaler carbon-free commitments genuinely restrict fossil dispatch.

Leeway Rating

General scores - independent of the research topic

Leeway Score33.4/100

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  • Market-Fit Rating Trend+568.1
  • Cycle Rating 32.0

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Structural Losers and Funding Shorts

Short

These assets face capped returns against uncapped costs, while crowded consensus trades are priced for flawless execution.

Elia Group

ELI.BR · Utilities · 13bn EUR

Short

Role in thesis: The cleanest structural loser: the payer that must buy scarce inputs at market prices and sell at administered ones.

Valuation context: Grid growth is real, but the equity holder funds it through issuance while the return is set by a regulator answering to electricity bill payers. Capped returns plus uncapped equipment bills create persistent dilution.

Invalidation risk: The thesis fails if real yields fall sharply, if regulators grant unusually generous returns to attract capital, or if a takeover crystallises value.

Leeway Rating

General scores - independent of the research topic

Leeway Score28.2/100

  •    
  • Market-Fit Rating Trend+3153.2
  • Cycle Rating 31.5

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NKT

NKT.CO · Industrials · 49bn DKK

Short

Role in thesis: Expresses the late-stage tier-1 grid-equipment call without making the portfolio dependent on exact timing.

Valuation context: It holds the highest-multiple exposure to the segment where announced capacity additions and Chinese and Korean qualification are most concentrated. The multiple assumes flawless multi-year conversion.

Invalidation risk: The thesis fails if certified labour and vessel scarcity defer the capacity wave to 2029–31, allowing current backlog pricing to hold far longer than plant models imply.

Leeway Rating

General scores - independent of the research topic

Leeway Score35.7/100

  • Business Rating 54.0
  • Market-Fit Rating Trend+1336.1
  • Cycle Rating 17.0

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First Trust Nasdaq Clean Edge Smart Grid Infrastructure ETF

GRID.US

Short

Role in thesis: A beta hedge and funding leg for the rotation from equipment to execution.

Valuation context: It concentrates exactly the ownership crowding and multiple expansion that this thesis argues is already spent, allowing investors to short the consensus without single-stock squeeze risk.

Invalidation risk: The thesis fails if a genuine AI-power melt-up extends multiples even further, or if the fund’s internal mix shifts heavily toward the very service companies held in the long portfolio.

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How this analysis is produced

The assessment is produced in several steps. Independent model families answer the same question separately and then attack the results. What you read here has survived several rounds.

  1. Two independent first theses. The same opening question goes to several model families that cannot see one another. Disagreements are kept, not averaged away.
  2. Dated evidence. Every claim that depends on facts is broken into individual search questions and answered with dated, sourced web research. Question, answer, sources and timestamp are logged and remain traceable.
  3. Adversarial review. Several review roles attack the thesis from different angles: one hunts for the strongest refutation, one for the awkward edge cases, one tests whether a path from thesis to share price exists at all, one checks the timeline for contradictions. Each role raises its own questions, which are again answered with evidence.
  4. Merge, then the next round. The surviving theses are merged into one and attacked again. The counter-position and the unresolved tension on this page come out of that step. They were not bolted on afterwards to look balanced.
  5. Back to the start. The process runs again until there is a clear result and a list of tradable companies with structural advantages.

Any analysis can be wrong. That is why the falsification criteria and the counter-position sit on the same page as the thesis, not in the small print.

The numbers shown against individual companies do not come from this process. The Business-Rating scores business-model quality, the Market-Fit-Rating eighteen fundamental figures against the current market, the Cycle-Rating the valuation against the stock’s own history. They are documented under the Leeway scores.

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Company Valuation and Fundamental Analysis

The data is recalculated on a weekly basis and depends on the current market value of the company and the balance sheet figures of the annual financial statements. The market value changes continuously with price changes, the balance sheets are created annually and change the valuation massively. The time of the annual financial statements and the metrics used can be viewed under "Metrics". Further information on how the analyses work can be found as tooltips directly on the analyses as well as in our explanations.

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